Final Thoughts

Big picture, the potential for larger future declines stems from some of the things we wrote about in the newsletter today. Scrap prices are lower in Turkey, often a bellwether of domestic scrap moves. Domestic scrap is widely expected to fall at least $30-50 per gross on for obsolete grades and perhaps by just as much for prime.

Demand is a concern in Turkey, as it is in China, where overproduction remains a problem. Meanwhile, two blast furnaces unexpectedly idled in March by ArcelorMittal in Europe look poised to come back online late this month or early next – just in time for the typically slower summer period.

China might not be able to ship much finished steel to the US because of prohibitive duties. But it can put pressure on markets abroad, which eventually results in pressure on US prices as well.

One possible result of unexpected weakness in China: We’ve heard recently that hot-rolled coil is available in the low $800s per ton for Q3 delivery to US ports. Last week, we’d heard that number was closer to $850-900 per ton. We’ve been told that price is available from a variety of places: South Korea, Turkey, and Vietnam. I would not be surprised if we start to see more European tons bumping up their Section 232 quota in Q3/Q4 at similar figures as ArcelorMittal ramps up capacity and as imports, which kept Europe from falling into a supply deficit earlier in the year, continue to put pressure on prices there.

Does that mean US HRC price will collapse? No. If you’re looking for a few hundred tons, I doubt there are any great deals to be had. If you’re looking to place 10,000 tons or more, it might be a very different story. We’ve heard you might be able to get below $1,000 per ton for very large orders. Those aren’t repeatable spot buys. So they wouldn’t fall into the low end of our price range. But, in a falling market, those outliers tend to become the prevailing price – albeit on a lag.

It’s a similar story with imports. Are US mills going to slash prices now to be competitive with imports that might not arrive until August/September? No. But have some quietly informed customers to think twice about buying foreign? Yes. Because those imports might not be such a good deal compared to domestic prices by the time they arrive.

I’d also keep a close eye on the automotive market. That’s partly because of upcoming contract negotiations with the United Auto Workers union. It’s also because fleet sales – think customers like rental car agencies – are up dramatically year over year. Cox Automotive reports that fleet sales are up 41% in Q1 2023 vs. the same period last year. Replenishing fleets is good source of pent-up demand. But fleet sales are also less profitable than sales to individuals, who are now grappling with high prices, high interest rates, and tighter credit. How much longer can the one offset the other?

SMU Community Chat

It’s not too late to register for our Community Chat on Wednesday at 11 am ET with Reibus founder and CEO John Armstrong. We’ll talk steel, technology, the banking crisis, and the outlook for 2H. You can learn more and register here.

By Michael Cowden, michael@steelmarketupdate.com