Steel Products Prices North America

Are Steel Prices Near a Bottom?

August 2, 2020

Hot rolled steel prices have declined nearly every week since early June when the benchmark price was at $515 to the current average of $450 per ton–a 13 percent decline in just seven weeks. Two out of three respondents to SMU’s poll of the market a week ago said they believe flat rolled steel prices are at or near a bottom. Most of them said they believe U.S. Steel and AK Steel stand little chance of collecting the $40 price increases they announced on July 21 without the support of the EAF mills. Which begs the question: Is a price hike from the minimills likely anytime soon?

Here’s what some of the service center and OEM executives had to say about the price increase by the integrated mills:

“There was no rationale for the integrated mills’ announcements. Unless the mini’s follow-on quickly, we see no reason for sheet prices to rise. There has been no reaction from our customer base one way or another. This might prove to be a complete non-event.”

“Given the fact that EAF producers have not joined the effort, the chances are zero [that the increase will be successful].”

“With the minimills apparently not following, it is unclear why prices would rise?”

“There’s still too much uncertainty for this market to rise. EAFs never followed. Demand still lags capacity. The minis are hungry and don’t appear ready to scale back production.”

“The integrated mills do not have spot tons to offer for August. The announced price increase will not stick. It was done 2-3 weeks too early.”

“Most integrated mills are filling their limited books with contractual obligations, whereas EAFs are maintaining contracts and actively pursuing transactional business, as well as trying to obtain market share.”

“I do not believe pricing will rise with the announced price increases. If it does, it will be short lived, as the minimills’ lead times are too short and they need tons to fill.”

Some buyers reported a widening spread between prices offered by the integrated mills versus minimills:

“Yes, there is a difference between prices offered by integrated and EAF mills, with around a $20-50/ton spread depending on mill, product and location. This relates directly to the disparity that exists between the two types of producing mills. BOF producers are tied up serving OEMs/contractual business and have extended lead-times as they are ramping up to meet production needs from auto, appliance and similar contractual end-users. EAF producers are also serving OEM/contractual customers, but they have a great deal more capacity available for the spot market, and thus their lead-times are extremely short. As a result, steel prices have fallen due to both excess supply as well as the falling scrap prices in the last few months. This will continue until one or both elements reverse course.”

“Remember, every major EAF mill is in the process of expanding their volumes, so market share is very important to them as a lead-in to the new capacity.”

“In terms of asking prices, EAFs are lower of course. However, if there are actually tons on the table, the integrated mills may still compete.”

Steel consumption is improving in various sectors, but with the integrated mills restarting some 5.5 million tons of blast furnace production in July and August, supplies could exceed demand for some time to come, say the experts. Ferrous scrap prices, which are expected to drop a further $10-40/GT in August, will also add to the downward pressure on finished steel prices in the near term, whether the EAFs announce an increase soon or not. The success of a price hike in the current environment is about as predictable as COVID-19.