Steel Prices: WOW, The Difference a Few Weeks Makes

It is not unusual for markets to spike as they are doing now. One never knows how to read the tea leaves. There were many buyers who took advantage of the low base prices during the early and mid-August time frame. Those who did not are suffering from not being a student of the market (regarding pricing), and/or being surprised by how quickly lead times extended.

The SMU proprietary July and August service center inventories clearly showed both inventories falling and an incompatible amount of inbound orders being placed based on a rising demand scenario. The net result is the current extension in lead times (normal) that have been exacerbated by the NLMK strike, Big River Steel issue with their galvanizing line, and some furnace issues at the integrated mills. So, those who are consuming our data should not have been overly surprised at the fact that flat rolled steel prices have been moving higher or the extension of lead times.

The surge in prices over the past 6 weeks has been truly striking. Based on the SMU hot rolled index, prices bottomed on August 11^th at $440 per ton and have since moved +$160 per ton to this week’s $600 per ton average. The last time SMU saw a run on HRC over this short a time span was from mid-April 2016 through May when prices shot up $170 per ton. Interestingly, the start point was $440 per ton and they shot up to $610 per ton during the six-week period. Overall, however, the run higher began well before mid-April (began at $405 in late February 2016) and peaked at $635 in early June. The total run from trough to peak was $230 per ton over 15 weeks. Just something for everyone to think about…. (By the way, all of this data is available under the prices tab in our website to member companies).

The CEO of a service center told SMU earlier today, “The mills are behind and totally messed up.  Supply chains are a mess.  Automotive desperate for tons, OEMS being put on allocation, OEMS and service centers being caught without enough stock to match demand.  Lead times moving out quickly.  Classic short squeeze.” This executive went on to say, “It feels like an outright panic. Of note, this is the fastest run up in pricing in the shortest period of time since 2010 (we only looked back 10 years). We have to ration out Galvalume.”

Do not be deceived by the AISI utilization rates which have steel mills pegged as producing at 64-65 percent of capacity. The flat rolled mills are essentially running full out. Well, those that can are running full out and thus part of the issue with supply is not all mills are able to run at full capacity right now.

From the Midwest we heard reference to four areas which are impacting pricing: Mill outages, the NLMK strike reducing availability, demand improving and lack of imports.

A service center executive told us, “Maintenance outage… In our world [Midwest], planned outages at SDI Butler & Columbus, NS BlueScope, and Big River Steel are all meaningful. We cannot get all the steel we want from SDI and/or NSBS at the moment. That does not happen often. I hear Nucor has some planned outages coming too but have less direct information there.”

From the South/Southwest we heard, “Pricing is mostly due to demand; all our sectors are booming except for Oil/Gas; though we are seeing tank MFGs getting busy; I’m told due to barrel of oil staying around $40/barrel will get rig counts to start climbing a little like we are seeing Canada rig counts. We continue to have record months; in both [segments of our business].

“We are seeing pricing for spot at $30cwt for HR though I’m hearing $31cwt quoted as well, and $40cwt for GALV/CR now… We are a buyer at those levels for small tonnages due to sales.  GALV is really extended, over 10 weeks at all mills in the south.  BRS is still down for their GALV line, looks like they are confident to come up at the end of the month; though I still hear rumors it will be longer [SMU has spoken to BRS and have been advised GI line will be back up this weekend].” 

An OEM located in the Southeast advised, “I’m not going to tell you anything you don’t already know or haven’t heard, but the markets are a mess…….all of them; steel, aluminum, zinc, ore, scrap, foreign, monetary, you name the market and it is a mess.

“Focusing on the steel market, some of this mess is being caused on purpose, such being the case with mill maintenance related outages and some of this is happening based on other forces at work.

With demand for energy products being down substantially, it’s hard to envision a market holding for long with >$600 hot rolled. No doubt that this is all part of a scheme to quickly book out 2020, kill the winter deal concept and close out on a high note in advance of contract season beginning, so it forces hands to act quickly as January lead-time becomes reality in a few weeks.”

An automotive service center buyer discussed with SMU the impact of the Big River Steel galvanized line being down has had on their business, “The Big River Steel Galvanized line being out has rocked my world.  Galvanized is near impossible to get until December and at a high price. The other mills jumped at the chance to push prices up.  I was surprised to see in the newsletter [SMU] this morning that your average price is below $40.  I can’t get anyone to quote below $40. I’ve been told there will be no year-end deals this year – so I’m looking at more contract business.  However, with prices where they are now, I’m not sure about locking in. What to do?”

An OEM out of the Northeast associated with the construction markets advised SMU, “I am buying 100% domestic. Mill direct (SDI) and through Worthington. The only orders late are Worthington because Delta is late into them. Demand for our products is growing MoM and expected to continue to grow.

Demand is still below pre-COVID forecasts.”

On Tuesday of this week SMU participated in the monthly HARDI galvanized steel call. The HARDI wholesalers supply products to mechanical contractors who are working on residential and commercial construction projects. They reported good demand, higher prices (increases averaging $140/ton or $7.00/cwt) and expectations that the next one to two months should be OK. After that there are already signs of a slowing in commercial construction. That worry is giving them pause when it comes to buying heavily going forward.

The HARDI members are not alone. Many service centers and end users are concerned about the prospects of lower prices once we move into 2021. They reference the new capacity coming online as Big River Steel doubles their mill. David Stickler, CEO of Big River Steel told our recent SMU Steel Summit Conference he expects production from the new EAF to begin around Thanksgiving of this year, and that they would quickly ramp up production to full capacity (which is double existing capacity) within a few months.

The question is when will the spike in prices end, and a shift in momentum will occur? One of the steel mills told SMU, “I would think that pricing will see some moderation as more tons come onstream, but no outright shock.”

In “normal” times foreign steel would temper any run-up in domestic steel. Many former foreign steel buyers are not domestic buyers. In order to make a change they would have to look out into late first quarter/second quarter before they would see arrival of foreign steel. Where will prices be at that point in time? That question is causing hesitation and keeping buyers with the domestic steel mills.

Buyers can sometimes sit on their hands when they should be buying. In the process, they keep the markets and pricing stronger for longer than one would think. We will have to wait and see if that will be the case during this cycle.