Final thoughts

The question then is where prices bottom.

One thing that sets SMU apart from other publications is that we publish a price range. And the low end of our HR range now stands at $620/st. (Btw, you can find all of our ranges using SMU’s interactive pricing tool.)

Why? Our understanding is that certain mills are trying to hold buyers to published prices. But volume discounts remain available – think 5,000-10,000 st or more. And that’s where that low end comes from. That makes some sense, too. We’re told that Korean HR is available in the low $600s.

We don’t track contract prices, but we can make some rough calculations to get an idea of where they are. CRU, our parent company, and the price which most contracts settle against, was at approximately $700/st last week. Big buyers might get a 7-8% discount on that, which would put them in the mid-$600s.

To be honest, I don’t know where breakeven is for domestic mills in a post-pandemic world. But if finished steel prices continue to drop, I wouldn’t be shocked if some mills start to get uncomfortably close to that breakeven.

That wouldn’t be unprecedented. Last September, shortly after the UAW strike started, the low end of SMU’s price dipped to $600/st. Just before Thanksgiving in 2022, a month before AHMSA unexpectedly went out, the low end of our HR ranges fell to $580/st. But we typically don’t stay in that territory for long.

One reason: Mills tend to take down capacity when prices get into the low $600s. For example, U.S. Steel announced the ilding of the ‘B’ furnace at its Granite City Works near St. Louis on Sept. 18 last year, just a few days after the UAW strike started.

Similarly, in late November 2022, U.S. Steel confirmed that it would idle the No. 3 blast furnace at its Mon Valley Works near Pittsburgh. The furnace had initially been taken offline for a month-long maintenance outage.

Another reason: Price hikes tend to coincide with big cuts to production. (You can follow along with our price announcement calendar.) Cliffs on Sept. 27 of last year announced a sheet price increase, less than 10 days after the idling at Granite City was announced. And in November 2022, Cliffs, USS, Nucor, and others announced price hikes around the time when USS confirmed the idling at Mon Valley.

Could we see something like that again? There are definitely rumors along those lines. But this year is a little different. U.S. Steel is in the process of being acquired by Nippon Steel. Yes, there are plenty of questions about whether the deal will close or what a final version of it might look like.

That said, it’s typically unusual to see a company make a big change – like a blast furnace idling – during a sales process. And then there is the matter of no one wants to be the first to cut capacity. Who wants to cut production when the benefits of tighter supply will accrue to your competitors who didn’t?

Also, it’s hard to see on the demand side what might send prices higher. That said, and as one veteran industry analyst once told me, whenever everyone throws in the towel on the market is usually about when it starts coming back.

SMU Steel Summit

That’s not very scientific. And SMU doesn’t do forecasts. But we admire the challenging work and insight that go into analysis and forecasting.

We leave that hard work to folks like Josh Spoores, principal analyst at CRU. He’ll provide his take on the market on the first day of Steel Summit, Aug. 26, at the Georgia International Convention Center (GICC).

Joining him will be Timna Tanners, managing director of Wolfe Research, along with Curt Wordworth, a director at Credit Suisse, and Alex Hacking, head of steel and mining research at Citi.

You can find the full agenda here, and you can register here. All of us at SMU look forward to catching up with many of you in Atlanta in August!