Final Thoughts

The market drivers are not the same. There was no new war this year. But it’s worth thinking about some of the eerie similarities between the current market and what we saw almost exactly a year ago, especially when it comes to lead times.

Cracks Emerging in Sheet?

Recall hot-rolled coil lead times hit post-Ukraine war peak of 5.84 weeks on April 12, 2022. Prices peaked a week later, on April 19, 2022, at $1,480 per ton ($74 per cwt). On April 26, 2022, both HR prices and lead times slipped. And by mid/late May, lead times had fallen back by a full week and prices had dropped nearly 9% to $1,350 per ton.

Are we about to see a similar pattern repeat? I ask because we’ve just recorded the first significant decline in hot-rolled coil lead times since Nov. 22 – shortly before the current upcycle got underway. I might brush it aside as outlier if it were just HRC. But we’ve also seen a noticeable dip in lead times for cold-rolled and galvanized products. We’ve in addition seen a big jump in the number of survey respondents reporting that mills are willing to negotiate lower prices.

These trends shouldn’t come as a total shock. We’ve seen prices and lead times roughly flat since mid/late March. And the steel market is, at least in sheet, still cyclical – so things rarely stay flat for long.

What does this mean in practice? Let’s say a mill quoted you a late May or early June lead a week or two ago. Your lead time might still be there now.

Does this mean prices will drop next week? Not necessarily. I’ve heard anecdotally that certain mills are more willing to negotiate lower galvanized prices. Some of those same mills might still be trying to move up HRC prices – even in the face of shorter lead times.

So perhaps HRC prices don’t crack next week even if lead times have. Heck, maybe mills try yet another round of increases to try to shore things up. I don’t have a crystal ball.

Whatever happens, it doesn’t change that there is a crack in what had been, to date, a solid wall of higher prices, extended lead times, and mills refusing to negotiate. How deep that crack goes and how wide it might open remains to be seen.

Plate Still Firm

I should stress that we’re not seeing those trends in plate. Plate lead times, unlike sheet lead times, extended modestly this week. And plate mills remain adamant about seeking higher prices.

We’ve heard from some plate contacts that their tons were being restricted. Maybe they weren’t placed on allocation. But they had been prevented from buying to the max end of their min-max contracts.

My understanding is that plate demand remains firm from some large project work. And there might not be the immediate supply to match that demand.

Case in point: Yes, Nucor in January shipped its first customer order from its new plate mill in Brandenburg, Ky. But as we’ve seen with several sheet mill expansions, you can’t just flip a switch and ramp a new or expanded mill up to its rated capacity.

Does this mean we could see a situation in which sheet prices are flat or falling and plate mills are announcing price increases? I wouldn’t rule it out.

SMU Events

Another thing I wouldn’t rule out is continued volatility. I know we’re all sick of it. We saw the snapback in demand following the pandemic drive HRC prices sharply higher in 1H 2021. The war in Ukraine did the same in 1H 2022. The price spike this year has been caused by a constellation of smaller events whose collective effect has been similar. What might 2024 bring?

I don’t pretend to know. But you can learn to better manage through volatile times with steel futures. So consider attending our Introduction to Steel Hedging training course on April 26 in Chicago. You can find our more and register here.

By Michael Cowden, michael@steelmarketupdate.com