Final Thoughts

Mills are still profitable at $1,190 per ton for hot-rolled coil, and lower costs for scrap mean there is little reason for them not to continue to lower prices. Why lose money to a competitor or to imports?

There has been chatter in the market for a while now about whether prices will fall back to around $1,000 per ton, roughly where they were just after Russian forces launched their full-scale invasion. The prospect of HRC at $1,000 per ton seemed remote in mid-April, when prices nearly hit $1,500 per ton, according to our pricing tool. It’s not hard to imagine now. HRC was down $65 per ton this week. Three more weeks of similar declines would put prices modestly below $1,000.

“My bigger concern is where does it stop? I didn’t think it was going to stop until – abracadabra! –  there was a war. Now I can’t think of a single thing would stop it from sliding besides the mills saying, ‘Ok, we’re going to throttle back,’” one service center executive said.

Will mills go below that? That depends not only on domestic costs but also on where import prices are, a mill executive said.  “If you’re a buyer, you’re like, ‘Wait a minute, why am I going to buy import right now? Domestic price is heading to $50 per cwt, I’m not sure it’s going to stop when it gets to $50 – so what is a good import price right now?’” he said.

We’ll set the question of import HRC prices aside for a moment. We’re also aware of lower import prices for coated products and for plate. Coated prices, like HRC prices, have been coming down fast. Plate prices have been edging down, but only modestly so. And unlike sheet, plate prices held steady week over week. How long can that comparative stability remain in the market?

Our sources tell us that domestic mills are trying to dig in around $1,860 per ton and that larger buyers are pushing for prices around $1,800 per ton. We’d expect decreases in the weeks ahead in line with lower scrap costs. We’re also told plate imports from East Asia are available for August shipment to domestic ports in the low- to mid-$1600s per ton. Does that mean that domestic plate prices will move down $200 per ton or so in the weeks and months ahead? We’ll see. Plate tends to lag sheet prices moves. So maybe the first sign of a sheet market bottom will be a significant drop in plate prices?

But enough talk of prices at the mill level. They might move lower, but most mills are still hauling in cash with each sale. That’s less the case for some service centers. Material ordered a month ago at higher prices is now underwater. “We were making a slim margin on hot-rolled and a decent margin on cold rolled and coated. Now we’re losing money on hot-rolled and making a slim margin on cold-rolled and coated,” the service center executive said. How many others are in the same boat?

SMU Surveys

Those of you not directly involved in the day-to-day steel trade might wonder how it’s possible that steel prices can be falling fast when prices for just about everything else are still rising. We’ll humblebrag that our survey results might lead some of the more closely followed macroeconomic data.

Hot-rolled coil prices and lead times have been falling since April 26. Over that time, we’ve also seen a big increase in number of survey respondents reporting mills willing to negotiate lower prices. Roughly 88% of respondents to our last survey, in late May, said mills were willing to negotiate lower hot-rolled coil prices.

We’ll release new results for mill negotiations and lead times on Thursday. And full survey results will be available on Friday. We’ll see then whether some of these trends continue.

SMU Events

We’ve been writing a lot about SMU Steel Summit on Aug. 22-24 in Atlanta. That in-person event, one of the biggest annual gatherings of the steel industry, is not to be missed.

But make sure not to overlook our workshops. Next up is our advanced steel hedging workshop on July 12-13. It’s good intel if you want to learn to use hedging to manage risk in these volatile times.

And it’s virtual, so it’s a great deal if you don’t have time for travel of if you’re concerned about high airfare costs. Click here to learn more.

That’s it for now. And thanks, everyone, for your business.

By Michael Cowden, Michael@SteelMarketUpdate.com