CRU: Supply Surplus Weighs on North American Sheet Prices

For long products, our Dec. 1 price assessments again moved higher in the USA m/m following a larger-than-expected scrap price increase last month, while demand has remained unseasonably strong. Mill-announced price increases for wire rod were the largest at $80 /s.ton m/m, while merchant bar and beam prices were also raised by $50 /s.ton. There was another increase of $30 /s.ton for rebar announced, but it was not clear at the time of our assessment two weeks ago if it had yet been accepted by the market. Given strong backlogs and general market tightness, it appears upward price momentum for most products will carry into early 2022 before cooling.

Sheet prices in the U.S. Midwest market have continued to move lower, yet not all prices are falling at the same pace. HR coil prices have led the decline, falling by $308 /s.ton or 15.7% from the recent high for our Dec. 8 price assessment, while CR and HDG coil prices have fallen back at a visibly slower rate.

For all sheet products, buyers have limited purchasing activity with some noting they have not purchased any material for the past two months as inventories and prior orders were able to satisfy demand. This has led to low volume in the spot market, yet we are seeing a wide spread of prices being reported for the past several weeks. For CR and HDG coil products, we are recording lower prices, yet the low end is much less aggressive versus what we are seeing in HR coil. This environment of low prices and a wide spread between data points has now introduced w/w volatility as we expected. While HR coil prices this week increased, the overall trend remains lower.  

One new change for HDG coil is a higher zinc coating weight extra. We have increased this extra, which reflects a G90 coating on 0.06-inch substrate, from $75 /s.ton to $90 /s.ton. This increase has come about due to notably higher zinc costs, partially due to high-cost energy slowing the production of zinc in multiple countries. 

Scrap prices in the USA were unchanged m/m following a surge in prices in November. This price rollover was weaker than expected for many market participants and was driven by subdued demand both domestically and abroad. However, with finished steel prices and lead times each falling, we believe the scrap market in January may diverge from historical trends. Typically, January prices climb m/m as flows slow seasonally; however, demand both domestically and abroad may prove weak enough to send prices lower.

Plate prices have steadied this week at $1,800 /s.ton. While this is down by $5 /s.ton w/w, it is up by 1.6% (or $29 /s.ton) from our Nov. 17 assessment. This gain reflects a partial acceptance of the most recent mill price increases. In analyzing recent transaction data, some prices this week are now lower than what we received in the last week or two, though some are also higher. Plate prices may now be at or very near peak levels, especially because service center inventories are up by 20% since June while the daily shipping rate is lower by 11%. Indeed, recent service center data from Steel Market Update shows inventories and the amount of material on order are both somewhat higher than ideal levels. Imports of plate, meanwhile, have been supported by the historically wide spread between domestic mills and producers in other countries. Due to this, import arrivals in 2022 Q1 will further support supply availability.

Outlook: Wire Rod Prices May Jump While Sheet Prices Fall

Sheet prices have fallen since reaching a peak in late September, yet they still remain excessively high in relation to a growing surplus of supply. Compared to a year ago, domestic steel production has risen by over 25%, service center inventories have flipped from a massive deficit to a surplus, import arrivals have doubled, lead times are nearly half of what they were in some instances, and 7.5 Mt of new sheet production is now set to start up in the coming weeks. While the price of HR coil has fallen at a faster rate than CR and HDG coil due to supply and demand fundamentals, we expect that the price of CR and HDG coil products will fall at a faster rate over the coming months. Still, a wider spread over HR coil may remain.

Wire rod, though, is in its own category as various production disruptions have intensified. These include a planned outage that is taking longer than expected and a recent force majeure declaration from another producer. Due to this, supply remains in a deficit versus current demand. We expect further, potentially significant, price gains to emerge. However, these disruptions will prove to be temporary, and a wider price spread will encourage more imports.

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