Final Thoughts

U.S. Sheet and Plate Prices Going Up

Recall that Nucor has announced price hikes of a combined $150 per ton since Russian forces invaded Ukraine on Feb. 24: One increase of $50 per ton on Feb. 25, and another of $100 per ton last Monday.

Does this mean that SMU will adjust its HRC price to $1,200 per ton on Tuesday? No. But it would be reckless not to consider a potentially sharp move higher.

It’s not just Nucor, of course. Other mills have quietly followed – rolling out new and higher prices without any formal communications to customers. It reminds me of this time last year, when customers didn’t need a reminder from mills on company letterhead about which way prices were headed. Everyone knew the direction was up.

And prices aren’t just going up for HRC. Our cold rolled base price currently stands at $1,525 per ton. And base prices for galvanized and Galvalume are at $1,480 per ton, according to SMU’s interactive pricing tool. Domestic mills are now offering cold rolled and coated base prices as high as $1,600-1,700 per ton. Increases for cold rolled and coated are happening fast too. I’ve been told, for example, that one domestic mill went from $1,500 per ton on coated base to $1,700 per ton – a $200 per ton increase – almost overnight.

Will mills get all of that? Maybe. Maybe not. Will they get none of it? Highly unlikely.

And then there is plate, whose price moves I still find confounding. SMU’s current plate price is $1,815 per ton. And both Nucor and SSAB have effectively announced price increases – albeit via different mechanisms.

I had written about how it made no sense that plate prices had been flat since the beginning of the year while HRC prices had (prior to the invasion of Ukraine) fallen $600 per ton.

It made no sense when plate prices fell nearly $300 per ton below hot band prices last year. And it makes no sense for plate to carry an approximately $800-per-ton premium over sheet this year.

I had assumed that coil would keep plate honest, and that plate prices would fall. But the war means I might have gotten it wrong. Perhaps it is now coil that has to rise to catch up with plate?

The Connection to War in Ukraine

There is a direct line between the war in Ukraine, trade barriers enacted on Russia in response to the invasion of its neighbor, and steel prices here.

One obvious direct point of connection – as we’ve noted here before – is pig iron. Brazil alone can’t replace the tons the world used to get from Russia and Ukraine. With metallics in short supply, scrap prices in the U.S. are up $125 to $175 per gross ton. And there is a good chance your local scrap yard is empty.

In very practical terms, how does Ukraine export via the Black Sea in the middle of war? How do its mills, some already idled, make steel in the middle of battlefields. This is no exaggeration. Ukrainian steelmaker Metinvest on Sunday, for example, said that its Avdiivka coke plant was under “massive shelling.”

There are also less direct connections. The U.S. doesn’t rely all that much on Russia for oil or natural gas. But Europe does. And surging energy prices have already forced some European mills to idle.

The result: European HRC prices are now above U.S. prices, according to figures from CRU, our parent company. Recall that just a few months ago U.S. prices were the highest in the world by a wide margin.

We discussed at the Tampa Steel Conference in mid-February, just before the invasion, whether the U.S. with its new capacity and cheap energy might become a steel exporter. That was a long-term question to ponder at the time.

The war, like the pandemic before it, is accelerating trends that were already in place. Will the U.S. become a net exporter not years from now but months from now instead?

And it’s not just prices that are changing (and rising) faster than the written word can keep pace with. So too is trade policy.

Russia is poised to lose preferential trade status, also known as Permanent Normal Trade Relations, with the U.S. and its allies. It’s a move without precedent. We could talk all day about whether the global trade system as we know it can be put back together after the events of the last three weeks.

In practical terms, Russia losing PNTR would mean that its imports could be subject to hefty duties – 20-35% for some products – in addition to existing measures such as Section 232 tariffs (25%).

In short, there are very real reasons why prices are rising as fast as they are now. And it really is happening just a month after we were considering HRC prices in the $800s per ton.

Demand Destruction?

Mills need to be profitable to continue making steel, which means they have to keep ahead of ballooning costs. The question is whether and for how long these higher costs can be passed along to consumers.

Another big theme at Tampa Steel was whether inflation in the second half of the year would blunt the strong demand that most expected in the first half. Will the war accelerate that trend too?

Perhaps it’s naïve to ask. We’re fussing about gasoline prices of $4-5 per gallon here. Johnny Sjöström, president and CEO of SSAB Special Steels, noted on our Community Chat last week that Swedish truckers are already grappling with diesel prices of $12 per gallon.

By Michael Cowden, Michael@SteelMarketUpdate.com