Final thoughts

Those who think prices might bottom soon predict that the Charlotte, N.C.-based steelmaker will announce higher HR number when it rolls out its first “consumer spot price” of June. They also note planned outages as well as lingering production issues at some producers could support that.

But others aren’t so sure prices will rise in the immediate term, regardless of what mills might announce. They point to a potentially weak June scrap market. They also note that it’s hard to fight seasonality. And lead times are in July, typically one of the slowest months of the year. (Independence Day, automotive model-year changeovers, etc.)

Meanwhile, most people tell us that demand, while stable, is back to pre-pandemic levels. In other words, there is no obvious catalyst on the demand side for higher prices. And mills might struggle to enforce higher prices if filling July order books proves challenging.

A restock, yes, but when?

So what might the catalyst be for the next cycle of higher prices? Based on conversations with some of you, I think the catalyst might be a good, old-fashioned restock. The question is when that happens.

We’ve heard anecdotally that many service centers are either drawing down inventories or merely filling holes – sometimes by buying from one another rather than from mills. And we’ve seen indications of that in our survey data as well. (See slide 31 here.) Only 12% of service center respondents in our last check of the market said they were restocking. Compare that to 59% who were maintaining inventory and 29% who were reducing it.

In addition, some center contacts have told me they have plenty of stock already. SMU’s service center inventory data supports that too. As those with a “premium” subscription can see here, service centers had 57.8 days of supply in April, down from 58.3 in March but up from 51.1 in April of last year.

Looking at those factors, I can see why some contacts say they don’t plan to restock until late summer.

And where do prices bottom?

But others tell me that, while they have no immediate need to restock, they would do so if they thought prices were at or near bottom. Basically, when they felt the downside risk was far less than the upside risk.

What makes folks – especially larger buyers capable of placing tens of thousands of tons (or more) aka “big tons” – step back into the market? It’s an important question to consider because big orders like that could stretch out lead times and lead to a familiar pattern (in the US market) of rapid-fire price hikes.

Let’s start with some of the dynamics we’re seeing in the spot market. SMU’s HR spot price stands at $750/st on average. (We’ll update our price again on Tuesday afternoon.) US mills have publicly stated that they’re seeking more than that. But we’ve also heard from some larger buyers that prices of ~$700/st, or even the high $600s, are available for those able to place big tons.

That makes some sense. We’ve heard that import from South Korea is available at approximately $670-680/st. And buyers might be willing to pay a little more in exchange for the shorter lead times (and fewer uncertainties in general) associated with domestic purchases.

We’ve also heard that some of the larger service centers have made offers in the mid-$600s but weren’t accepted by domestic mills. So does that mean that prices are at a bottom? Maybe. But it might be too early to jump to that conclusion.

Let’s also consider what things look like in the contract market. Let’s say the spot market is $750/st. And let’s say the average contract discount is about seven percent. That theoretically puts contract prices just under $700/st.

I’ve been told that mills’ breakeven is mid/low $600s/st in a post-pandemic world of inflation and higher costs in general. That roughly squares with where we’ve seen prices bottom over the last two years: $642/st on average in November 2022 and $676/st in September 2023, according to our pricing archives. (Keep in mind those are spot prices, so contracts were lower.)

In past cycles, mills might have gone to or a little below breakeven for the biggest buyers. It’s arguably worth it to get a baseload of business that provides a foundation from which to announce and support higher prices.

So do big buyers think spot prices will bottom in the mid-$700s? Or do they hold out until they can get HR in the mid/low $600s/st as they have in past cycles? As for of timing, do prices fall quickly in June and then rebound? Or do they drift sideways or lower throughout the summer before rebounding in the fall?

I think one thing to watch for might be mills threatening to idle production (or doing it) rather than accepting prices below a certain threshold. We’ve seen that in past cycles. And it is perhaps the most obvious sign that prices have truly bottomed.

Agree or disagree? Let me know what you think at info@steelmarketupdate.com!

Steel 101 on June 11-12 in Ft. Wayne, Ind.

Our next in-person Steel 101 is about a week away. There are a few spots left, and we expect them to go quickly.

Attendees will learn how steel is made in the morning on June 11. And then they’ll feel the heat of steel being made at SDI Butler in the afternoon. The mill tour really makes the knowledge stick.

They’ll on June 12 learn more about market cycles, key end markets, and fun stuff (for us steel nerds) like coating extras and futures.

You can learn more and register here.