The total rig count in the US rose to 775 total rigs in operation. The number of active oil rigs increased to 623, up five from the week prior, while the number of gas rigs declined to 150. Miscellaneous rigs remain unchanged at two. Compared to this time last year, the US count is up 174 rigs, with oil rigs up 131, gas rigs up 41, and miscellaneous rigs up two, respectively.

As expected, the Canadian rig count is up for a second week, with oil rigs at 141, gas rigs at 86, and miscellaneous rigs unchanged. This week’s Canadian count is up 36 rigs compared to levels one year ago, with oil rigs up 20 and gas rigs up 16, respectively.

The international rig count decreased by 10 to 900 rigs for the month of December, and is up 66 rigs from the same month one year ago.

For more in-depth information on the energy market, Steel Market Update publishes an “Energy Update” report each month covering oil and natural gas prices, detailed rig count data, and oil stock levels. Our November report is available here for Premium members.

For a history of both the US and Canadian rig count, visit the Rig Count page on the Steel Market Update website here.

About the Rotary Rig Count

A rotary rig is one that rotates the drill pipe from the surface to either drill a new well or to side track an existing one. Wells are drilled to explore for, develop and produce oil or natural gas. The Baker Hughes Rotary Rig count includes only those rigs that are significant consumers of oilfield services and supplies.

The Baker Hughes North American Rotary Rig Count is a weekly census of the number of drilling rigs actively exploring for or developing oil or natural gas in the US and Canada. Rigs considered active must be on location and drilling. They are considered active from the time they break ground until the time they reach their target depth.

The Baker Hughes International Rotary Rig Count is a monthly census of active drilling rigs exploring for or developing oil or natural gas outside of the US and Canada. International rigs considered active must be drilling for at least 15 days of the month. The Baker Hughes International Rotary Rig Count does not include rigs drilling in Russia or onshore in China.

By Becca Moczygemba, Becca@SteelMarketUpdate.com

With the new year having just started, the physical market remained quiet last week and metal consumers still have low visibility over 2023 Q1. Nevertheless, the higher LME price and higher regional premiums suggest renewed optimism about lower inflation and a potential rapid recovery in the Chinese economy. This buoyancy is being noted in other regional markets. The Rotterdam duty-unpaid and duty-paid premiums were both assessed higher last week at $195–205/t and 260–280/t, respectively.

In the last few weeks China has moved rapidly away from its zero-Covid policy of repressing the virus with lockdowns, isolation, and frequent testing. In the short term, this relaxation has led to a surge in infections, which will disrupt the economy probably through 2023 Q1. In the longer term, it provides an opportunity for re-establishing higher rates of growth. In the US and Europe, several signals are suggesting that inflation may have peaked, but the risk remains especially in Europe where the war in Ukraine and the energy crisis are far from over.

December Inflation Report Brings Good News

As a follow-up to the recent announcement by the Federal Reserve of St. Louis, the December inflation report was very positive. Inflation in key markets was down significantly, signaling the worst could be over. In their statement the Fed also mentioned they are looking at a core inflation that removes shelter and consumer goods prices, as those are anomalies caused by the housing market shortage of 2022 and the Covid-19 related shortages, respectively. Labor market data also remained positive as the unemployment rate hit the lowest point it has been in 50 years, and wage growth has tempered. This positive news sparked optimism that interest rate hikes will slow, and the economy overall is in a healthier state.

Extrusion Demand Soft in 2022 H2

After the ups and downs of the pre- and post-pandemic economy, the dust is beginning to settle. Extrusion shipment volumes were starting to cool in Q3, and as Q4 data is finalized it is clear this trend has continued. In November, total extruded product shipments as reported by the Aluminum Association were down just over 9% year on year (y/y) and 8% month on month (m/m). This has brought total year-to-date (YTD) volumes for 2022 just about even with 2021, and could fall slightly below after December data comes through. 2021 often is credited as creating unfair comparisons due to the frantic post-pandemic pace. However, total YTD volumes as reported to the Aluminum Association are still well below 2019 figures as well.

Using YTD data through Q3, extrusion shipments are down close to 4% when compared to 2019, the last “normal” year. The loss in volume is spread out across all end-uses, but the two largest, B&C and transportation, were most affected. Much has been made of supply chain disruptions and the chip shortage stunting domestic auto production. However, extrusion shipments for passenger cars and light trucks applications were up 4.37% over the 2019 base year. This is a sign of the higher aluminum intensity in modern vehicles as build rates have not fully recovered. Most of the loss in volume has been related to truck trailer and semis, down over 10%. Overall shipments to transportation end-uses are still down 8.5% in total.

Building and construction has fared better than transportation, but is still -4.8% from the 2019 base year. The housing market had been strong, making residential construction a reliable area of growth. Doors and windows for single and multifamily homes are the largest segment of B&C extrusion applications, and grew 6.6% over these last two years. This equates to an extra 9 million pounds of shipments. Nonresidential construction has struggled, with doors and windows falling 16%, and storefronts down 30%. Other B&C shipments as denoted by Aluminum Association data have yet to recover fully, and are currently 14.5% below 2019 base levels. Distributors are also worth noting, with shipments up less than 1%. Service center shipments are a reliable barometer for nearby demand and the flat performance is indicative of demand as the market transitions from 2022 to 2023.

By Matthew Abrams, Matthew.Abrams@CRUGroup.Com

The new warranties will range from 40-60 years vs. 20-25 years for existing warranties, the company said in a statement.  

“At US Steel, we understand and share the commitment of our customers and their customers who demand long performing, environmentally friendly building materials that are high quality and cost-effective,” said Ken Jaycox, US Steel SVP and chief commercial officer.

The company said the new warranties apply to coils shipped on or after Jan. 1, 2023, with heavier coating weights receiving longer warranties. Also, pre-painted products receive an additional 10 years of coverage.

Galvalume, a coating of zinc, aluminum, and silicon, is a registered trademark of BIEC International Inc.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

If one is announced, would it stick? Let’s consider a few possibilities. I’ll divide them into pros/cons.

The Pros

We’ve seen a shift in service center buying patterns recently, as evidenced by our latest market survey. (See slide 32 in the Jan. 6 survey here.) I wouldn’t make too much of one survey result. But it is possible that the destocking cycle we saw for most of 2022 has ended.

Have we entered a re-stocking cycle? I’m leery of making any such predictions just yet. But I think it’s fair to say that it’s no secret how contract buyers have behaved, and will behave over the short term.

As most of you know, many contracts are based on the prior month’s CRU spot price. So your January contract price was based on a discount to the December price.

Once mills rolled out post-Thanksgiving price hikes, contract buyers reasonably figured that December’s CRU price was the lowest they’d be seeing in a while. They had also negotiated more generous “CRU minus” discounts in 2023 compared to the paltry ones they got in 2022.

The result: If you had a min-max contract, you probably went to your max in January. You might have maxed out February, too, following the second wave of increases.

A lot of this is momentum driven. If you think mill order entry in March will be strong enough to support another round of price hikes, you might buy heavy for March, too.

My guess is that people won’t be maxing out contracts in the spring out of fear that prices could be underwater come summer. But I’m getting a little ahead of myself on an article focused on a potential late-January price hike.

The Cons

Old mills and aging infrastructure tend to struggle in extremely hot weather and extremely cold weather. We saw a prime example of this in February 2021, when winter weather reaching as far south as Texas caused power outages and significant mill downtime from the Southeast to the Gulf Coast and into northern Mexico.

We also saw it in 2014, when a prolonged cold snap resulted in thick ice forming on the Great Lakes. The ice was still blocking Lake Superior as late as March and April of that year, which meant that some integrated mills weren’t able to replenish their ore supplies, and were forced to idle furnaces.

Guess what hasn’t happened this winter? Yes, we had a short, intense cold snap the week before Christmas. But it didn’t result in any significant outages. Weather since then has been mild for much of the country.

My point is this: We’re about halfway through January. It’s possible winter still has some cards up its sleeves. It is, however, running out of time to play them. So if you’re betting on weather-related outages, the odds are probably against you.

I’ve had more people than I expected ask me how I think 2023 demand will be. They’re comfortable with their current inventories and their current material on order – but they’re not sure what to do next. Do they get conservative and risk running low on steel if demand surprised to the upside? Or do they pull in their horns in case demand disappoints?

It seems like some of this might be related to a bit of a loss in faith in forecasts. The last few years have been so unpredictable – because of the pandemic, supply chain problems, the war in Ukraine – that it’s hard to make them and hard to accept take them as gospel.

There is also the stubborn fact that capacity utilization remains low. You’re not going to bring a furnace back if you think demand will be strong in 1H but weak 2H.

The Hope

The hope among some buyers appears to be that prices will stabilize at a “new normal” that is slightly higher than “old normal.” I’m not talking the predictions we’ve seen in recent years of ~$1,000-per-ton HRC being sustainable.

Let’s say the hope now is that “new normal” will be $150-200 per ton above what normal had been pre-pandemic. Put that at roughly $675-775 per ton. There is perhaps a case for that.

The flat-rolled market is far more consolidated now, and scrap prices might be structurally higher as more new EAF sheet mill capacity ramps up. That could keep a higher floor under prices. That same new capacity, as it battles for market share, could also keep a ceiling on prices.

Or so the argument goes. I admit that I’m skeptical. Steel prices are rarely stable for long. And that was true even in the before times – the distant galaxy of 2019 – when black swans weren’t the norm.

By Michael Cowden, Michael@SteelMarketUpdate.com

While improved market sentiment resulted in some restocking demand, the availability of metallics, particularly scrap, has dwindled due to seasonal factors, thereby aiding prices.

Metallics prices across major geographies have either increased or stayed stable at the start of 2023. Scrap prices in Asia and North America increased substantially, while those in the EU had a relatively quiet start to the year.

EU-based scrap buyers have just returned from the winter holidays and were greeted by sellers attempting to raise prices. Suppliers have been citing the limited availability of obsolete and prime grades due to low collection at the end of 2022, alongside rising freight rates and the resurgence of Turkish buying appetite, as the reasons for raising their bids. At the time of writing, negotiations were still underway as buyers are still not convinced market fundamentals had improved enough to support higher input costs.

In the US, on the other hand, 2023 started off with initial bids of scrap rising by $60 per long ton for primary grades and $30 per long ton for secondary grades. Mills have cited larger buy programs for the month, so rising demand on the back of seasonally lower availability is mounting upward pressure on scrap prices.

An increase in export offer prices to Turkey and Asia has also pulled domestic prices higher. Nevertheless, it is important to note that while mills are actively buying scrap, its steel production remains quite subdued, with crude steel capacity utilization down 8% year-on-year (YoY) during the first week of January.

While the recent rise in domestic steel prices (i.e. US Midwest HR coil price is up by over $80 per short ton MoM) has brought in some optimism, concerns remain over the sustenance of steel demand in the near term as recessionary threats continue to loom.

Within Asia, scrap prices have moved up by $25–35 per metric ton MoM aided by optimism brought on by the easing of Covid-19 restrictions in China and the resultant sharp uptrend in regional steel prices. The results of CRU’s latest Asian Sentiment Survey indicate that market participants are now maintaining an optimistic view towards market activity (against an overall bearish view in November), so much so that idled steelmaking assets are being gradually restarted in the region.

Some of the mills in the region are actively buying scrap much ahead of their normal restocking period, fearing prices will jump even higher in the coming weeks. Nevertheless, as is with other regions, actual steel demand is yet to recover, which puts into question the maintenance of recent price rises.

While scrap price movements were mixed, the prices of ore-based metallics have moved up evenly across key regions. FOB Black Sea pig iron price is up $10 per metric ton MoM to $ 378 per metric ton, while Brazilian origin pig iron price is up $20 per metric ton MoM.

Italian HBI price also increased $50 per metric ton MoM to $350 per metric ton CFR. Pig iron buyers are anticipating Indian suppliers to offer more volumes in the coming months, now that the export tax was lifted, which may put some supply-side pressure on seaborne prices. Nonetheless, rising scrap prices support pig iron prices and this may continue in the near term.

As is with scrap, the primary concern in the ore-based metallics market is the underlying steel demand conditions, which remain quite modest. While increasing activity and prices do indicate confidence building amongst steelmakers towards raising output levels, macroeconomic risks to steel demand are still aplenty.

Outlook: Further Upside to Scrap Prices to be Capped

Given the weakness of steel market fundamentals and emerging macroeconomic risks, we remain skeptical of a sustained short-term improvement in demand for metallics in major global markets. Additionally, easing winter conditions in the US will raise scrap collection as well as the recent upswing in recycling margins amidst higher prices, which will ease supply tightness.

In Asian markets, we expect the current sentiment-driven price increase to be short-lived. As the Chinese New Year (CNY) holiday period is in late January, one week earlier than in previous years, workers will enter holiday mode earlier. This means that underlying steel demand in China will weaken in the coming weeks, despite improving sentiment related to the reopening and possible economic stimulus.

Mill production will also fall during the CNY period affecting scrap demand not only in China but also in other parts of Asia where demand sentiment resonates that in China.

For pig iron prices, the recent increase in scrap prices across major demand centers should prevent declines, though offers from non-traditional suppliers such as India may put some supply-side pressure. Nevertheless, there is an upside risk to prices if demand improves more than expected as Brazil is currently the sole large source of pig iron, particularly in the US and Europe.

This article was originally published on Jan. 12 by CRU, SMU’s parent company.

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Learn more about CRU’s services at www.crugroup.com

He said Detroit mills entered the market last week at prices up $60 per gross ton on prime grades and up $30 per gross ton for obsolete grades.

“So this is the second month in a row of increasing scrap prices,” he continued.

Another executive noted that shredded and other obsolete grades were higher by $30 per gross ton in the East and up $40 per gross ton in the Ohio Valley.

“The larger jump in the Ohio Valley for shredded was in part to ‘catch-up’ from lower prices there in December,” the executive said, adding that in the South, shred traded higher by $30-$35 per gross ton.

Additionally, prime scrap increases were +$50-$60 per gross ton, depending on the region, the executive said. “The higher end of the increase came in the Midwest due to restocking needs.”

SMU’s scrap prices for January are as follows:

• Busheling at $420–460 per gross ton, averaging $440, up $60 from last month

• Shredded at $410–440 per gross ton, averaging $425, up $35 from last month

• HMS at $330–370 per gross ton, averaging $350, up $35 from last month

Looking to February, both executives saw a sideways market as a possibility. 

The first executive sees February as sideways to up “since mills had trouble filling their needs, and the weather has caused problems.”

The second executive agreed that the talk is a sideways February, “which would be unusual as February is usually a down month following January’s global restocking period.”

“But this year, it remains to be seen whether export demand sustains (it well may), and how much domestic flows improve. They will, but will it be enough?” he added. 

PSA: SMU members can chart various scrap prices as far back as 2007 using our interactive pricing tool.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

“If you look at it algebraically, you can see that the new capacity represents the electrification, modernization, and decarbonization of the domestic steel industry,” he said.

“The US produces the lowest carbon intensity steel in the world. And EAFs (electric-arc furnaces) in America get their energy from a grid that gets greener every year.” And as companies continue to optimize their production processes, Bell said we should expect an increased demand for scrap and scrap substitutes. “The US steel industry has the carbon advantage”, he said.

He also praised Section 232. “232 played a role in a lower carbon future for our country. It reduced the amount of dirty imported steel coming in,” Bell said. He added that national security tariffs as well as antidumping and countervailing duties are necessary for holding other countries to a higher standard.

Missed the Community Chat with Tom Derry last month? No problem. Click here for a recording of this and past SMU webinars.

By Becca Moczygemba, Becca@SteelMarketUpdate.com

SMU uses the following calculation to identify the theoretical spread between foreign HRC prices (delivered to US ports) and domestic HRC prices (FOB domestic mills): Our analysis compares the SMU US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and Far East Asian ports. This is only a theoretical calculation because costs to import can vary greatly and often fluctuate, which influences the true market spread.

In consideration of freight costs, handling, and trader margin, we add $90 per ton to all foreign prices to provide an approximate CIF US ports price that can be compared against the SMU domestic HRC price. Buyers should use our $90-per-ton figure as a benchmark, adjusting it as necessary based on their own shipping and handling costs. If you have experience importing foreign steel and want to share your thoughts on these costs, we welcome your insight and comments: David@SteelMarketUpdate.com.

Far East Asian Hot-Rolled Coil (East and Southeast Ports)

As of Wednesday, Jan. 11, the CRU Far East Asian HRC price increased $9 per ton week on week (WoW) to $562 per net ton ($620 per metric ton), up $27 from levels one month prior. Adding a 25% tariff, and $90 per ton in estimated import costs, the delivered price of Far East Asian HRC to the US is $793 per ton. The latest SMU hot-rolled average is $735 per ton, up $40 from our previous price update, and up $65 compared to our price one month ago.

Therefore, US-produced HRC is now $58 per ton cheaper than steel imported from Far East Asia. This is down from a spread of $87 per ton one week prior. One month ago we saw a spread of $89 per ton, the second-largest price appeal that domestic HRC has had over Far East Asian HRC since September 2020. Prior to October, Far East Asian prices had held the advantage since mid-March (the differential peaked at $375 per ton in May). The widest price advantage recorded for Far East Asian prices was nearly 16 months ago, at $847 per ton in September 2021.

Italian Hot-Rolled Coil

Italian HRC prices increased $21 per ton WoW to $650 per net ton ($717 per metric ton) this week, and $54 per ton higher month on month (MoM). After adding import costs, the delivered price of Italian HRC is approximately $740 per ton.

Domestic HRC is now theoretically just $5 per ton cheaper than imported Italian HRC, down from a spread of $24 per ton last week. One month ago we saw a spread of $17 per ton, favoring domestic prices. In mid-November we saw a spread of $57 per ton, the largest margin in favor of US prices recorded since last March. Domestic steel has held this price advantage since late October. Before the removal of the 25% Section 232 tariff, the spread just 14 months reached $577 per ton in November, the largest in SMU’s data history.

German Hot-Rolled Coil

CRU’s latest German HRC price increased $19 per ton WoW to $697 per net ton ($768 per metric ton), up $70 per ton MoM. After adding import costs, the delivered price of German HRC is approximately $787 per ton.

Accordingly, domestic HRC is now theoretically $52 per ton cheaper than imported German HRC, down from a spread of $73 per ton one week prior. Four weeks ago, prices between these regions were $47 per ton apart (with US prices holding the advantage). Domestic HRC has held this price advantage for all but three weeks since late July. German HRC held the price advantage for the three months prior to that, having reached a 2022 high of $164 per ton in May. Prior to the removal of the 25% tariff, the October 2021 spread of $504 per ton was the widest in SMU’s data history.

Figure 4 compares all four price indices and highlights the effective date of the tariffs. Foreign prices are referred to as “equalized,” meaning they have been adjusted to include importing costs (and tariffs in some cases) for a like-for-like comparison against the US price.

Notes: Freight is an important part of the final determination on whether to import foreign steel or buy from a domestic mill supplier. Domestic prices are referenced as FOB the producing mill, while foreign prices are CIF the port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel. When considering lead times, a buyer must take into consideration the momentum of pricing both domestically and in the world markets. In most circumstances, domestic steel will deliver faster than foreign steel ordered on the same day.

Effective Jan. 1, 2022, the traditional Section 232 tariff no longer applies to most imports from the European Union. it has been replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. SMU still includes the 25% Section 232 tariff on foreign prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

By David Schollaert, David@SteelMarketUpdate.com

Rolling Second Month CME Hot Rolled Coil Future $/st & Open Interest

The latest SMU survey forecasting the price of Midwest HR 60 days out showed only 5% of the survey participants predicting prices above $800 and 0% below $600, or about $100 on either side of this week’s CRU. So this survey is telling us the steel industry expects HR prices are suddenly going to go from the volatility of the past two years taking HR from $500, to $1,900, to $955, to $1,655, to $650, to suddenly grind to a halt and sit in a a narrow $200 range?  That sounds likely… NOT!!

How can we explain this? According to Wikipedia, “Recency bias is a cognitive bias that favors recent events over historic ones; a memory bias. Recency bias gives “greater importance to the most recent events.”

HR futures bottomed, and you can’t make this stuff up, 64 days ago on Nov. 9, and have rallied $100 -$120 since. Now what? Will prices continue to rally or reverse lower? There are few guarantees in life, but I can guarantee you this—in 60 days, the price of HR will either be higher, lower, or flat.

CME Hot Rolled Coil Futures Curve $/st

Yesterday, Jeff Currie, Goldman Sachs Global Head of Commodities Research, was interviewed on Bloomberg Markets, the title of which read Goldman’s Currie Sees Oil at $110 by Q3, and he said the following (in italics):

“There is the reversal in the (China’s) zero-covid policy that impacts oil, but when you think about copper, there is also the growth impulse, the stimulus into the property market, the reversal of the three red lines.”

Since bottoming on Nov. 1 at $70.85/ton, iron ore has steadily rallied 73.6%, making a new high almost day after day. Today, it traded just above $123 and settled at $122.85.

Rolling Second Month Iron Ore Future $/t

“This is a big shift! Let’s remember what reopening in the U.S. and Europe did to oil and commodities. We (Goldman) are very postive on both oil as well as copper as you get the reopening.”

Chinese Lunar New Year starts on Sunday, Jan. 22, and runs for a week to 10 days, so expect a clearer picture out of China at the start of February. 2023 is the year of the rabbit, an elusive animal with big ears and quick bursts of speed. Will we see quick bursts higher in commodity prices?    

Rolling Second Month SHFE Chinese HRC Future $/st

“Let not forget, oil, copper, pick your commodity, inventories are exhausted, spare capacity exhausted… the shelves are empty, they’re not prepared for a demand increase.”

Markets have taken notice over the past few trading sessions, with copper and aluminum rallying sharply. If you recall, base metals, iron ore, and Chinese steel prices were among the first to rally out of the lows of Q2 2020.

March CME Copper $/lb

Rolling 3-Month LME Aluminum $/mt

“One other point I want to emphasize for copper, oil and all these markets, physically theyre priced for a recession, they’re destocked, the shelves are empty at the input level, so they’re not prepared for a demand increase.”

When he says “all these markets,” does he mean these same ideas can be applied to steel and ferrous raw materials? The January busheling future surged, settling earlier this week up $59.45 at $449.06, the second straight month with an increase after falling seven straight months from May through November.

Rolling Front Month Busheling $/lt and Turkish Scrap Futures $/mt

One commodity going in the other direction has been natural gas, which has plummeted 45% in 30 days. The relatively mild winter is mostly to blame, but the weather has been a gift to Europe, in addition to the decline in the cost of natural gas as they continue to battle the cold and with their primary gas supplier, Russia. 

February Natural Gas Future $/MMBtu

Steel mills and steel production facilities were idled all over Europe last year in anticipation of energy shortages. When Currie says “so they’re not prepared for a demand increase,” is he talking about the European steel industry, too?

Rolling Second Month CME North European HRC Future $/st

“We see the upside start to be significant.”

Billions of people emerging out of a COVID lockdown, idled steel mills, potentially better-than-expected economic growth, does this remind you of anything? The U.S. is looking at a rebound in automotive, significant growth in nonresidential construction and plummeting steel imports.  When Currie says “they’re destocked, the shelves are empty… not prepared for a demand increase,” he isn’t talking about the domestic service center industry, right?

Rolling Second Month CME Hot Rolled Coil Future $/st & Open Interest

My mantra in 2021 was “keep an open mind about price,” and I will reiterate that here. The notion that volatility is suddenly going to collapse, that the pendulum swinging back and forth at 90 miles an hour is just going to grind to a halt… I ain’t buyin it.   

By David Feldstein, Rock Trading Advisors

Steel Market Update: How did your steel career begin?

Phil Bell: I worked at a steel plating processing company in Corpus Christi, Texas, called Elementis Chromium while I was going to school at night. We made chemicals that were used in a variety of industries, but to primarily strengthen and treat wood and steel. I was a maintenance and production supervisor, but after I got my degree, I went into human resources. Then I became the director of administration at Qualitech (Steel), spent time both in Corpus and in Pittsboro, Ind., where they were also building an EAF. Qualitech was eventually sold to SDI. After leaving there I worked in various roles at SGL Carbon, then went on to Gerdau, and now I’ve been at SMA for nine years. Working for SMA members, not just the CEOs, but the rank-and-file members as well, is probably the most rewarding thing I’ve ever done.

SMU: What has changed the most during your time in the industry?

PB: Well, I’ve seen a lot happen over the past three decades. Probably the top three things I’ve seen change the most is, number one, it’s becoming apparent that EAF steelmaking is becoming a force for good in the world – on several levels. The second thing I’ve seen is an increased focus on ESG in our industry. Everyone is looking at environmental sustainability and corporate governance in a way that they haven’t looked at it in the past. Steelmakers have really stepped up, but most people have an antiquated view of the steel industry, and they think of smokestacks, coal, and iron ore. You can look at recent annual reports that have been released and see the commitment of SMA members to creating a greener, more sustainable future. And third is the war for talent. It’s something that’s real, and something the steel industry really needs to get serious about because we have a large segment of our workforce who are over 50. We have to make sure that we have a pipeline of young talent that can come into this industry and continue to move it forward, and that’s at all levels, at the production, maintenance and technology level. And at the mills, it’s at the commercial levels, the management levels, the technical levels in the corporate offices.

SMU: Sustainability is so important! It’s definitely more than just a buzzword in our industry.

PB: You’re absolutely right. It’s not just a buzzword for EAF steel producers. We were sustainable before sustainable was cool, whether it was through the recycling of ferrous scrap, the use of electricity vs. coal, closed water loops where the water we use and the steelmaking process often goes back out into the environment cleaner than when it came in. These are all things that we can be incredibly proud of.  If anyone in this country is serious about having a lower carbon future, one of the most important things that they can do is buy domestically produced EAF steel. You know, we’re leading the way for the rest of the world.

SMU: So, what are the biggest challenges of your job?

PB: I think the biggest challenge is creating an environment where competing companies can belong to an organization and coalesce around common issues. Every single producer member of the SMA has a seat on my board. So, theoretically, I have 25 bosses and navigating the needs and the desires and the goals of these 25 different organizations. I think a second challenge of my job is making sure that the EAF message gets out there. People say things that are unsubstantiated. It’s my job to be a messenger and ambassador, if you will, for the EAF industry, and to make sure that the EAF story is told accurately, often, and that it’s not diluted.

SMU: What’s the message that you want people to receive about the EAF mills?

PB: The message is very simple. We currently have an existing steelmaking process that is energy efficient and produces the lowest carbon intensity steel in the world, and that process is EAF. And I think that the quickest way for us to lower carbon in the steel industry and to create a greener carbon future is to embrace the success and the innovation and the investments of the EAF steel industry. So that’s the message that I try to tell people every day. You would be amazed the number of people that don’t really know that or recognize that.  

SMU: What’s most rewarding about your job?

PB: For me the thing that’s most rewarding is helping SMA members. You know, help them build their business, help SMA member employees build their lives and help SMA communities build their future. And I think I have an opportunity to do that by leading this great organization. Another thing people don’t know is we’re just getting started because the SMA is only 34 years old. We haven’t been around over 100 years. But those 34 years kind of highlight, in my opinion, the demarcation between modern steelmaking and traditional steelmaking, and it’s just really a great time to be in our industry, and I enjoy doing that. We have a lean cross-functional team that’s good at a lot of different things, but we provide a tremendous value proposition for our members. I can’t think of working with a group of people that are more passionate about promoting domestic steel production and the success of domestic steelmakers.

SMU: If you weren’t in the steel industry, what would you be doing?

PB: I think I would either be in the military or I would be a Methodist minister somewhere in south Texas.

SMU: I’m seeing a theme here…. being of service others, maybe?

PB: I do enjoy it. And I kind of measure my success on my ability to help other people succeed.

SMU: You currently serve on the US Department of Commerce International Trade Advisory Committee (ITAC). That’s a mouthful to say, but what exactly does that mean?

PB: ITAC is a group of business representatives that advise the United States trade Ambassador and the Secretary of Commerce on important issues related to steel that impacts companies, their employees, and the overall economy. We provide our insights and our input on trade policy, and on trade negotiations. It’s a very useful partnership that benefits the government, as they’re getting expertise from volunteer advisors to help shape policy, and to also make sure that what they’re trying to do can survive contact with reality. You can have a lot of great ideas and theories in the government level, but will that translate? I really treasure my membership with ITAC and look forward to sharing ideas with the government officials that we engage with.

SMU: Where do you see the industry in the next 10 years?

PB: I think you’re going to see an industry that’s leaner. And that’s going to be due to both M&A and also efficient steel production replacing any inefficient steel production. You’re going to see an industry that is more sustainable, that’s going to be due to the growth of EAF steel production. In fact, the Department of Energy’s decarbonization roadmap predicted that by 2050, 90% of all steel will be produced by EAF producers.

SMU: Anything else you want people to know?

PB: I really want to thank the 25 producer members of the SMA, and all of the associate members of the SMA. These are people that provide goods and services to steelmakers and to my team here in Washington, D.C., for really being dedicated and devoted to the success of domestic steel production.

Want to hear more from SMA? Join us Jan. 11, 2023, at 11 a.m. ET for a webinar with Phil Bell. Click here to register! Missed December’s Community Chat? Click here for the recording.

By Becca Moczygemba, Becca@SteelMarketUpdate.com

Now that steel prices have bottomed, will they continue to rise in response to new price hikes? If so, how high?

“I don’t see it going over 700.”

“They may make it into the 800s if scrap keeps going up, but there is no increase in demand.”

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“Unsure. Most of the downstream OEMs and what not have $1.00cwt HR and $1.15cwtHDG/CR bases as their metal cost for selling their product, and most are still raising prices downstream as well.”

“Yes, but to a limited extent. Over $750 is unlikley.”

“Yes, prices will rise in response to increased scrap prices and mill increases. Best guess $780 with upside duration being limited by demand.”

“Yes. Governed by demand, hopefully.”

“They will rise through first quarter. I expect HR to be above $800.”

“Yes, because of the scrap going up more than expected and announced increases, they will get above $750.”

“Yes, 2023 will see prices rise due to cost to produce and demand.”

“Mills are making less margin, so pressure is to move pricing higher, and offshore volumes are getting less.“

“Maybe $750/ton HR.”

Is demand improving, declining or stable?

“Demand is tepid, and with the recession threat, not much optimism amongst buyers.”

“Stable for now, but possible recession will slow demand in the next quarter.”

“Improving. I think we are still skipping across the bottom.”

“Demand is comming back as people return from holiday break.”

“Stable to declining.”

“Varies across market segments, so lets call it stable. There’s still enough inflation and economic uncertainty out there. As well, supply in certain segments is outpacing demand.”

“Mostly stable… not improving..”

“Demand remains stable.”

“I am still seeing demand as stable but shaky.”

“Improving as buyers overbuy trailing contracts to beat the price increase.”

“Demand seems stable, but the perception is that it is better—I think this is a reaction to having less inventory.”

Is inventory moving faster of slower than this time last year?

“Different climate than last year, hard to compare.”

“A little slower.”

“For us, slower. Supply chain disruptions & labor issues continue to impact (slow) throughput.”

“Moving slower.”

“So far a bit faster than last year.”

“No, business is much slower than it was a year ago—economy is slowing—winds of recession.”

“Faster, last year prices were falling in this time-frame until Russia invaded Ukraine.”

“Depends on our deals with our customers. Some are asking to be covered into the third quarter at the current cost.”

Are you seeing the impact of new North American capacity in the market?

“Certainly in the Southwest, but not plate – yet.”

“Not really. Maybe a few more products available in small amounts from some of the mills that haven’t been quoting spot tons on those items, but not much overall yet.”

“Yes, but projects that require melted and poured in the US absorb addtitonal capacity coming online recently..”

“Not much on the west coast..”

“Lead times are being pushed out.”

“No, lead times are being heavily manipulated to artificially decrease supply. Mills have plenty of capacity and are choosing not to use it.”

“Not at all.”

“Yes, due to lower offshore supply and certain markets that are still strong.”

Do you think the $50/ton sheet price hike announced by Nucor on Monday will stick?

“It reflects the change in scrap cost to the mill. They will fight to get most of it, but demand has not improved.”

“Not so far.”

“Probably.”

“Yes, if other domestic mills have disipline. Imports are later shipments and cannot arrive in time, so domestic mills can keep increasing for now.”

“Too early to tell.”

“Partially. Momentum is there.”

“Not completely, but a scrap bump will certainly help them recover a portion.”

“Likely, as the market was heading in this direction regardless.”

“Part of it will stick—I am guessing 20-30/ton will stick.”

“Yes, just a pass through of rising material costs (scrap).”

“No, in our construction industry, sales will not support it yet.”

“Mostly, they are playing catch-up. Most mills are already trying to hold this range.”

PSA: If you have not looked at our latest SMU Market Survey results, they are available here on our website to all Premium members. We often refer to this as our ‘Steel Market Trends Report,’ and we publish updates every other Friday. We encourage readers to explore the full results, as we simply cannot write about all of the information within. After logging in at SteelMarketUpdate.com, visit the Analysis tab and look under the “Survey Results” section for “Latest Survey Results.” Historical survey results are also available in the Survey Results section under “Survey Results History.” We will conduct our next market survey next week, contact us if you would like to have your company represented.

By Becca Moczygemba, Becca@SteelMarketUpdate.com

Now that steel prices have bottomed, will they continue to rise in response to new price hikes? If so, how high?

“I don’t see it going over 700.”

“They may make it into the 800s if scrap keeps going up, but there is no increase in demand.”

“Unsure. Most of the downstream OEMs and what not have $1.00cwt HR and $1.15cwtHDG/CR bases as their metal cost for selling their product, and most are still raising prices downstream as well.”

“Yes, but to a limited extent. Over $750 is unlikley.”

“Yes, prices will rise in response to increased scrap prices and mill increases. Best guess $780 with upside duration being limited by demand.”

“Yes. Governed by demand, hopefully.”

“They will rise through first quarter. I expect HR to be above $800.”

“Yes, because of the scrap going up more than expected and announced increases, they will get above $750.”

“Yes, 2023 will see prices rise due to cost to produce and demand.”

“Mills are making less margin, so pressure is to move pricing higher, and offshore volumes are getting less.“

“Maybe $750/ton HR.”

Is demand improving, declining or stable?

“Demand is tepid, and with the recession threat, not much optimism amongst buyers.”

“Stable for now, but possible recession will slow demand in the next quarter.”

“Improving. I think we are still skipping across the bottom.”

“Demand is comming back as people return from holiday break.”

“Stable to declining.”

“Varies across market segments, so lets call it stable. There’s still enough inflation and economic uncertainty out there. As well, supply in certain segments is outpacing demand.”

“Mostly stable… not improving..”

“Demand remains stable.”

“I am still seeing demand as stable but shaky.”

“Improving as buyers overbuy trailing contracts to beat the price increase.”

“Demand seems stable, but the perception is that it is better—I think this is a reaction to having less inventory.”

Is inventory moving faster of slower than this time last year?

“Different climate than last year, hard to compare.”

“A little slower.”

“For us, slower. Supply chain disruptions & labor issues continue to impact (slow) throughput.”

“Moving slower.”

“So far a bit faster than last year.”

“No, business is much slower than it was a year ago—economy is slowing—winds of recession.”

“Faster, last year prices were falling in this time-frame until Russia invaded Ukraine.”

“Depends on our deals with our customers. Some are asking to be covered into the third quarter at the current cost.”

Are you seeing the impact of new North American capacity in the market?

“Certainly in the Southwest, but not plate – yet.”

“Not really. Maybe a few more products available in small amounts from some of the mills that haven’t been quoting spot tons on those items, but not much overall yet.”

“Yes, but projects that require melted and poured in the US absorb addtitonal capacity coming online recently..”

“Not much on the west coast..”

“Lead times are being pushed out.”

“No, lead times are being heavily manipulated to artificially decrease supply. Mills have plenty of capacity and are choosing not to use it.”

“Not at all.”

“Yes, due to lower offshore supply and certain markets that are still strong.”

Do you think the $50/ton sheet price hike announced by Nucor on Monday will stick?

“It reflects the change in scrap cost to the mill. They will fight to get most of it, but demand has not improved.”

“Not so far.”

“Probably.”

“Yes, if other domestic mills have disipline. Imports are later shipments and cannot arrive in time, so domestic mills can keep increasing for now.”

“Too early to tell.”

“Partially. Momentum is there.”

“Not completely, but a scrap bump will certainly help them recover a portion.”

“Likely, as the market was heading in this direction regardless.”

“Part of it will stick—I am guessing 20-30/ton will stick.”

“Yes, just a pass through of rising material costs (scrap).”

“No, in our construction industry, sales will not support it yet.”

“Mostly, they are playing catch-up. Most mills are already trying to hold this range.”

PSA: If you have not looked at our latest SMU Market Survey results, they are available here on our website to all Premium members. We often refer to this as our ‘Steel Market Trends Report,’ and we publish updates every other Friday. We encourage readers to explore the full results, as we simply cannot write about all of the information within. After logging in at SteelMarketUpdate.com, visit the Analysis tab and look under the “Survey Results” section for “Latest Survey Results.” Historical survey results are also available in the Survey Results section under “Survey Results History.” We will conduct our next market survey next week, contact us if you would like to have your company represented.

By Becca Moczygemba, Becca@SteelMarketUpdate.com

However, the ITC said that the existing orders on imports of this product from Austria, Belgium, China, France, Germany, Italy, Japan, South Africa, South Korea, Taiwan, and Turkey would remain in place. The US is also keeping countervailing duties on plate from China and South Korea.

The lifting of anti-dumping duties on Brazilian plate follows the five-year “sunset” review process required by international trade law. Sunset reviews require US trade officials to decide whether duties should be extended or allowed to lapse (i.e., sunset).

Removing duties on Brazilian steel has become a trend. US trade officials have also decided to let duties expire on Brazilian hot-rolled and cold-rolled coil – something that has raised the ire of domestic mills. As in other recent cases involving Brazil, ITC commissioners voted unanimously to keep duties on imports from other countries. But it was a 3-2 vote on Brazil. ITC Chairman David Johanson voted against continuing duties on Brazil along with Commissioners Jason Kearns and Amy Karpel. Commissioners Rhonda Schmidtlein and Randolph Stayin voted to continue the duties. The sunsetting of duties on Brazil is notable because it could allow the country to become a more important supplier of sheet and plate to the US market, especially since Brazil does not face a Section 232 tariff of 25%. Brazil is instead limited by its Section 232 quota. Duties were imposed on plate from Brazil in 2017 following a wide-ranging trade petition. That petition was one of several filed against sheet and plate imports in 2015 and 2016 that altered the import landscape.

Case in point: Brazil shipped 124,702 metric tonnes of plate to the US in 2014, that figure had collapsed to 7,654 tonnes by 2016. Brazil shipped no plate to the US from 2017 to 2021, and only 17.2 tonnes in 2022, according to Commerce Department figures.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

Keep in mind that this is the high season for tourism in Florida, and rooms are going fast. You can learn more about the agenda, explore networking opportunities, and register here.

There will be an outdoor networking reception on Sunday evening as well as a golf tournament and a harbor tour of Port Tampa Bay on Monday morning. The conference program begins Monday afternoon.

SMU has intentionally made this event a North American one, with executives attending from around the continent, sharing their inside perspectives on what’s happening in steel.

Speaking of attendees, here is a list of companies registered so far. Those with an asterisk next to their name are sending more than one person to the event:

A.R. Savage & Son, LLC, ACM, ADM Investor Services, AFC Transport, Inc., Air Products and Chemicals*,  Alabama Port Authority*, Algoma Steel Inc.*, All Weather Insulated Panels, Alliance Steel LLC, AlphaUSA, American Construction Metals, American Heavy Plates, AMS Specialty Steel, ArcelorMittal Dofasco*, Area Transportation, Argus Media, ASSA ABLOY Door Group, Associated Terminals, Atez Logistics, LLC, Atlantic Logisitcs*, Bank of America*, BBC Chartering USA, LLC, Beemac Logistics*, Blackhawk Steel, BMO*, BNSF Railway*, Borroughs LLC, Briccetti & Associates, Brown Brothers Harriman, Celtic Marine and Logistics, CEMCO, Central Oceans USA, Central States Manufacturing Inc., Century Metals & Supplies, Inc.*, Chapel Steel, CIH*, Cleveland Cliffs Inc., Cleveland Steel Container*, Clipper Americas Inc.*, Coastal Cargo*, Coilplus, Inc., Colakoglu Metalurji A.S., Colonial Terminals, Comanhia Siderurgica Nacional, LLC (CSN)*,  Cooper Consolidated, LLC*, Cooper/Ports America*, C-River Logistics, Crowe LLP*, CRU,  CSN LLC, Diehl Tool Steel, Duferco Steel Inc.*, Duluth Seaway Port Authority, E-Crane International USA, Inc.*, Elementus Minerals, LLC, Elgen Manufacturing, Empire Stevedoring (LA) Inc. A Company of QSL, Esae Capital Partners LLC, Esmark Inc.*,  Essien Welding Enterprise, Fathom Consulting*, Ferogen Inc., Fitch Ratings, Friedman Industries*, Galvasid*, General Kinematics Corporation*, Gibraltar – SEMCO, Goldman Sachs, Great Circle Shipping Corporation, Greystones Maritime International, GridBeyond, Grupo Collado, Gulf Stream Marine, Harbor Freight Transport Corp., Heidtman Steel*, Holt Logistics*, Huntington Bank, Hyundai Corporation, Hyundai Steel Company, Illinois Tool Works (ITW)*, International Trade Commission, ITW Drawform , JFE Shoji America, LLC*, JIT Warehousing, JLG, JSW Steel USA, Kanematsu USA Inc., Kelly Pipe*, Klauer Manufacturing Company,  Kloeckner Metals*,  Kpler*,  Lafayette Steel and Aluminum*, Lapham Hickey Steel*, Leeco Steel LLC, Logistec USA Inc., Logistic Services, Inc., Macsteel International USA Corp, Magswitch Technology Inc*, Mainline Metals, Inc., Matandy Steel & Metal Products*, McNichols Co., Medtrade, Inc.*,  Mercury Resources LLC, Metal Edge Partners LLC, Metal Master*, Misteelco Inc., Mitsui & Co. (USA) , Inc.,  Modern Metals, Monti Inc., MTALX Ltd, National Material Electrical, New Process Steel,  Nippon Steel North America, Inc., Nippon Steel Trading Americas, Inc.*, North Star BlueScope Steel*, Nucor Steel, Ohio Coatings Company*, Ohio Pickling & Processing, Olympic Steel,  Inc., OmniSource, Optima Steel International, LLC*, Optimus Steel, LLC,Oshkosh Corporation, Owen Industries Inc, Owen Metals Group, P&S Transportation Inc, Pacific Metals Trading, Inc.*, PADNOS Recycling*, PCA ( America’s Cement Manufacturers), Peak Metals Inc., Perfiles LM, Phillips Manufacturing*, Phillips Tube Group , Port Contractors, Port KC, Port Manatee, Port of New Orleans, Port Of Tampa Bay, Portland Cement Association, Ports America*, Premier Bulk Stevedoring, Priefert Manufacturing, Priefert Steel* ,  QSL – Americas ,  Quality Metal Stamping ,  Raleigh St Metal Recycling ,  Red Bud Industries* ,  Reibus International Inc.* ,  Revax Addis ,  Reynolds Services ,   Inc. ,  Rukert Terminals Corporation ,  Ryerson ,  Ryerson & Central Steel And Wire ,  Samuel , Second City Metals, SecuraSOFT*, South Jersey Port Corporation*,  Southland Advisors, Southwark Metal, SSA Atlantic LLC*, SSAB, Steel Company, Steel Dynamics, Inc.*, Steel Manufacturers Association (SMA)* , Steel Market Update*, Steel Warehouse*, SteelSummit-Tennessee, Summit Global Trading*, TA Services, Tampa Steel & Supply, Tempel Steel Company, Ternium Mexico*, Ternium USA, The Bradbury Group*, The Jordan International Co., The Kinetic Company, The Mercury Group, thyssenkrupp Steel North America, Inc*, Tri County Metals, Tri State Maritime Services, Inc., U.S. Department of Commerce,  International Trade Administration, UBS Securities LLC*, US Department of Commerce, International Trade Administration, US Department of Commerce, Vance Metal Fabricators, Vicwest Building Products, voestalpine USA LLC, Watco Logistics, Webco Industries, Weissenrieder & Co., West Coast Metals, Wheeling-Nippon Steel, Inc., Wiley Rein LLP, Wiley’s International Trade practice, Wolfe Research*, Worthington*, XSteel USA

Is your company’s name on the list? We’d love to see you there!

By Becca Moczygemba, Becca@SteelMarketUpdate.com

No, 2023 is not starting off with a big bang like 2021 did. We’re unlikely to see a market like early ’21 anytime soon. But it’s fair to say the market now is lot stronger than a year ago.

Recall early ’22 saw supply catch up with demand and then overshoot it. FOB mill prices were a lot higher then. But service centers were already slashing prices with abandon.

What’s also interesting is that the waves of mill price hikes that began after Thanksgiving have gained traction downstream in a way that a prior round of increases in August/September never did.

The big question: Does the current market have legs, or is it too early to say?

Lead times have been extending, which is a sign that the upswing is more than a cost push. That said, a mill might have a longer lead time in part because it’s operating at a lower capacity utilization rate.

A four-week lead time at 90% capacity utilization is a different beast than a four-week lead with utilization below 80%. And some sources have questioned whether demand supports prices continuing to rise, noting also that higher prices were in part the result of lower production levels from domestic mills.

That’s a fair point. But I wouldn’t place money on domestic mills cranking up production soon. For electric-arc furnace (EAF) mills, that would require going to the market for more scrap – which would drive scrap prices up higher still. And I can’t see integrated mills restarting idled blast furnaces – an expensive proposition – unless they are 100% sure long-term demand will be better.

Service Center Inventories

Ordinarily I’d suggest keeping a close eye on service center inventories. We’ll be releasing December figures to our premium members on Jan. 17. The problem with December is that it’s much more impacted by seasonality than other months.

Let’s say it turns out that sheet inventories popped over three months of supply in December 2022 from 2.62 months in November. Would it be time to freak out about demand disappointing in 2023?

No, not based on that data point alone. Inventories jumped above three months in December 2021 (from 2.85 months in November to 3.19 months at year end), and in December 2019 (from 2.66 months in November to 3.15 months at year end) as well.

The exception was December 2020, when inventories rose from 2.10 months in November to a mere 2.33 months at year end. That turned out to be among the early signs that prices were about to go berserk in the first half of 2021.

So why shouldn’t you get too worked up about December inventories? Basically, shipments slow in December because of the holidays, fewer shipping days, etc. But inventory doesn’t slow in tandem. That’s how I’d look at it. And then you might have had some buying ahead of increases this year, too, which could amplify those trends.

My advice? Wait until January results to jump to any conclusions based on service center inventories.

Tampa Steel Conference

Approximately 375 people are now registered to attend the Tampa Steel Conference, which SMU holds in conjunction with the Port of Tampa Bay, on Feb. 5-7.

That’s more than total attendance at the event last year, and that number is expected to rise because we typically see a last-minute surge in registrations.

Don’t miss out! You can learn more about the event, the agenda, networking opportunities, and register here.

PS – Our service center inventories report is a great reason to upgrade to a premium SMU membership. Contact Lindsey Fox at Lindsey@SteelMarketUpdate.com to learn more.

By Michael Cowden, Michael@SteelMarketUpdate.com

SMU’s hot-rolled coil price now stands at $735 per ton ($36.75 per cwt), up 5.8% from $695 per ton last week and up nearly 15% from $640 per ton a month ago. Cold-rolled and coated prices also rose, although some sources noted that coated tags weren’t as strong as cold rolled given widespread availability at certain mills.

Our sheet pricing momentum indicators continue to point toward upward while our plate momentum indicator remains at neutral.

Hot-Rolled Coil: The SMU price range is $690–780 per net ton ($34.50–39.00/cwt), with an average of $735 per ton ($36.75/cwt) FOB mill, east of the Rockies. Both the lower and upper ends of our range increased $40 per ton compared to one week ago. Our overall average is up $40 per ton from one week ago. Our price momentum indicator on hot-rolled steel points to Higher, meaning we expect prices to increase over the next 30 days.

Hot-Rolled Lead Times: 4–7 weeks

Cold-Rolled Coil: The SMU price range is $890–980 per net ton ($44.50–49.00/cwt) with an average of $935 per ton ($46.75/cwt) FOB mill, east of the Rockies. The lower end of our range increased $30 per ton compared to one week ago, while the upper end increased $10 per ton. Our overall average is up $20 per ton from one week ago. Our price momentum indicator on cold-rolled steel points to Higher, meaning we expect prices to increase over the next 30 days.

Cold-Rolled Lead Times: 5–9 weeks

Galvanized Coil: The SMU price range is $880–970 per net ton ($44.00–48.50/cwt) with an average of $925 per ton ($46.25/cwt) FOB mill, east of the Rockies. The lower end of our range increased $20 per ton compared to one week ago, while the upper end increased $30 per ton. Our overall average is up $25 per ton from one week ago. Our price momentum indicator on galvanized steel points to Higher, meaning we expect prices to increase over the next 30 days.

Galvanized .060” G90 Benchmark: SMU price range is $977–1,067 per ton with an average of $1,022 per ton FOB mill, east of the Rockies.

Galvanized Lead Times: 5–9 weeks

Galvalume Coil: The SMU price range is $900–960 per net ton ($45.00-48.00/cwt) with an average of $930 per ton ($46.50/cwt) FOB mill, east of the Rockies. The lower end of our range increased $20 per ton compared to one week ago, while the upper end increased $30 per ton. Our overall average is up $25 per ton from one week ago. Our price momentum indicator on Galvalume steel points to Higher, meaning we expect prices to increase over the next 30 days.

Galvalume .0142” AZ50, Grade 80 Benchmark: SMU price range is $1,194–1,254 per ton with an average of $1,224 per ton FOB mill, east of the Rockies.

Galvalume Lead Times: 5–9 weeks

Plate: The SMU price range is $1,400–1,480 per net ton ($70.00–74.00/cwt) with an average of $1,440 per ton ($72.00/cwt) FOB mill. Both the lower and upper ends of our range remained unchanged compared to one week ago. Our overall average is unchanged from one week ago. Our price momentum indicator on steel plate is Neutral, meaning we expect prices to remain stable over the next 30 days.

Plate Lead Times: 4–7 weeks

SMU Note: Below is a graphic showing our hot rolled, cold rolled, galvanized, Galvalume, and plate price history. This data is available here on our website with our interactive pricing tool. If you need help navigating the website or need to know your login information, contact us at info@SteelMarketUpdate.com.

By Michael Cowden, Michael@SteelMarketUpdate.com

Sheet Imports

Table 1 shows December license data with month-on-month (MoM) and year-on-year (YoY) changes for relevant sheet products, and data for the top five countries shipping the most of each product to the US.

Imports of hot-dipped galvanized sheet and strip rose 26% from November’s final count of 138,620 net tons to 174,099 tons in December’s license count. Despite a MoM boost from South Korea, noticeable declines were seen in HDG shipments from Turkey, Canada, and Mexico. Compared to year-ago levels, December licenses declined by nearly half.

Hot-rolled sheet imports dropped 12% MoM, and showed an even more accentuated decline YoY, a 49% drop to 134,287 tons of December licenses. A notable spike in shipments from Japan was a bright spot, but not enough to offset shipments falling by 33% from top trading partner Canada.

November licenses for cold-rolled sheet imports totaled 128,370 tons, up just 1% from November’s final count, and up 3% from December 2021.

All other metallic-coated sheet imports, meanwhile, rose 35% from November to 51,983 tons of December licenses. December’s count is, however, 50% below year-ago levels. Shipments were down from four of the five top countries shipping this product to the US.

Plate Imports

Table 2 shows December license data with MoM and YoY changes for relevant plate products, and data for the top five countries shipping the most of each product to the US.

Imports of coiled and cut-to-length plate varied from November’s final count, but on the year-ago comparison, both are down by double digits.

Licenses to import coiled plate reached 119,991 tons in December, just a 3% MoM rise, but a 16% decline YoY. Noteworthy MoM increases were seen in shipments from Mexico, the Netherlands, and Germany.

Cut-to-length plate import licenses fell 39% from November’s final tally to 30,476 tons in December. Licenses were down 26% from 41,273 tons of imports in December 2021. The total MoM decline resulted as imports dropped from three of the top CTL plate trading partners – South Korea, Mexico, and Sweden.

Slab Imports

Table 3 shows December license data with MoM and YoY changes for semifinished slab imports, and data for the top three countries shipping most of each product to the US. Mexico and Canada were the only two countries to apply for slab import licenses during the month of December, according to government data. No slabs have arrived from Russia — once a major source of steel slab shipped to the US — since June of this year.

No licenses to import slabs from Brazil were registered in December after 116,007 tons were imported in November. This resulted in a 42% MoM and 79% YoY decline in total slab imports, with 78,542 tons of licenses in December’s count. Slab imports from Mexico saw a complete reversal after no tons were imported in November, but were still 60% down YoY, with 46,940 tons accounting for the majority of December slab licenses.

Total Steel Imports

Table 4 shows December license data and updated final November figures, with MoM and YoY changes for all steel products, along with data for the top five countries shipping the most steel to the US.

Total steel import licenses of more than 2.03 million tons were up 11% from November’s final figure, but down 22% from year-ago levels, with double-digit MoM declines seen from four of the top five trading partners.

By David Schollaert, David@SteelMarketUpdate.com

December’s increase in the headline index was supported by broad-based increases across office, warehouse, retail, and hotel planning, the report said. The institutional component saw varied results, with growing recreation and public building projects, while education and healthcare planning activity remained flat.

Compared to December 2021, the overall Momentum Index was 40% higher last month. The institutional component was up 20%, while the commercial component was 51% higher on a year-over-year basis.

The report noted that a total of 15 projects with a value of $100 million or more entered planning last month. Commercial projects include a $500-million Vantage Data Center in Sterling, Va., and a $183-million mixed-use building in Chicago, and institutional projects include a $400-million Acute Neuropsychiatric Hospital in Los Angeles, and a $185-million life sciences building in Philadelphia.

“One of the key construction storylines for 2022 was the return of enthusiasm and optimism in prospects for nonresidential growth,” said Richard Branch, Dodge’s chief economist. “While some of that will likely erode in 2023 as economic growth wanes, increased demand for some building types like data centers, labs, and healthcare buildings will provide a solid floor for the construction sector.”

An interactive history of the Dodge Momentum Index is available on our website. If you need assistance logging into or navigating the website, please contact us at info@SteelMarketUpdate.com.

By David Schollaert, David@SteelMarketUpdate.com

“The sequential decrease in steel shipments and adjusted EBITDA as compared to the fiscal second quarter 2023 is largely due to lower-than-expected plate shipments, continued softening in steel pricing, and normal seasonal maintenance activities ahead of winter,” Algoma CEO Michael Garcia said in an earnings guidance statement.

These subjects were also discussed in the company’s most recent earnings call on Nov. 8. Algoma posted adjusted EBITDA of C$82.7 million in its fiscal Q2 ended Sept. 30, on shipments of 435,202 tons.

Garcia continued that, “Despite a return to more typical levels of unfinished plate production, total plate shipments were adversely impacted by temporary downstream finishing constraints as we ramped up plate production.”

The CEO said the company expects to produce adjusted EBITDA of C$395 million to C$405 million ($294 million to $301 million USD) for the first nine months of its fiscal 2023.

“I am pleased that the plate mill has resumed normal production levels. We expect to return to more normalized shipments in calendar 2023, and to apply the lessons learned during phase one of the plate mill modernization to our future capital projects,” Garcia said.  

He noted that Algoma remains focused on completion of its electric-arc furnace project, which is still on budget and on track to be producing steel in 2024.

The two new EAFs, approved in 2021, will replace Algoma’s blast furnaces and will have combined steelmaking capacity of 3.7 million tons per year.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

Domestic mills produced 1,595,000 net tons in the week ending Jan. 7, down 0.4%, or 7,000 tons, from the previous week, and down 8.1% from 1,735,000 tons in the same week last year.

Last week’s output was the lowest total since the week of Dec 12, 2020, per AISI figures.

US mills ran at a capacity utilization rate of 71.3% last week, down from 71.8% the week prior, and 79.8% a year ago. Utilization last week was at its lowest total since Nov. 28, 2020.

Adjusted year-to-date (ytd) production through Jan. 7 was at 1,595,000 tons, with ytd capacity utilization at 71.3%. That’s 8.1% below 1,735,000 tons ytd in early January 2022, when ytd capacity utilization was 79.8%, AISI said.

Production by region for the week ending Jan. 7 is below. (Note: week-over-week change is in parentheses.)

• Northeast, 128,000 tons (down 3,000 tons)
• Great Lakes, 541,000 tons (down 3,000 tons)
• Midwest, 200,000 tons (up 5,000 tons)
• South, 654,000 tons (down 9,000 tons)
• West, 72,000 tons (down, 3,000 tons)

Note: The raw steel production tonnage provided in this report is estimated. The figures are compiled from weekly production tonnage provided by approximately 50% of the domestic production capacity combined with the most recent monthly production data for the remainder. Therefore, this report should be used primarily to assess production trends. The AISI production report “AIS 7,” published monthly and available by subscription, provides a more detailed summary of steel production based on data supplied by companies representing 75% of US production capacity.

By David Schollaert, David@SteelMarketUpdate.com

“CMC’s outstanding financial performance during fiscal 2023’s first quarter was made possible through strong execution by our North America and Europe teams who navigated very different market environments,” company chair, president and CEO Barbara R. Smith said in a statement.

In its North American segment, the company said the average selling price for steel products increased by $44 per ton vs. the first quarter of fiscal 2022, while the cost of scrap utilized dropped $103 per ton, resulting in a year-over-year increase of $147 per ton in steel products margin over scrap.

“While we anticipate margins over scrap in both North America and Europe to remain elevated in relation to historical levels, we expect they will compress from first quarter levels,” Smith said.

In North America, CMC shipped 704,000 tons of steel products in the quarter vs. 699,000 tons in the year-ago period, while its European segment it shipped 473,000 tons vs. 365,000 tons a year earlier.

Regarding the previously announced Arizona 2 micro-mill in Mesa, Ariz., Smith said the company is en route for a spring 2023 start-up.

“The commissioning of this exciting project is well-timed, as we anticipate construction activity related to the Infrastructure Investment and Jobs Act will begin ramping up during 2023,” Smith noted.

The company recorded net after-tax costs of $4.4 million associated with pre-commissioning activities at the Arizona 2 project.

Smith added that last month CMC announced the location of a fourth micro-mill, Berkeley County, W.Va.

“Once complete, we expect this investment will enhance our production flexibility and customer service capabilities, generate attractive returns, and improve our sustainable, through-the-cycle earnings and cash flows,” the CEO said.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

“We reserve the right to review and re-quote any offers that are not confirmed with either a Nucor sales acknowledgement or written acceptance by both parties,” the company said in the letter.

Nucor’s move comes after Cleveland-Cliffs Inc. announced a price hike of the same amount in mid-December.

NLMK USA and ArcelorMittal followed that increase. Other major steelmakers, notably Nucor and US Steel, did not. (Note: Steel Dynamics Inc. does not typically announce price increases.)

But some market participants had expected another round of mill price-increase announcements linked to higher January scrap costs.

SMU’s hot-rolled coil price currently stands at $695 per ton ($34.75 per cwt), up 13% ($80 per ton) from a 2022 low $615 per ton recorded before Thanksgiving.

Mills began announcing sheet price increases the following week, and prices have been on an upswing since then.

By Michael Cowden, Michael@SteelMarketUpdate.com

Both trends are more pronounced than what we saw in late August and early September, when mills announced a round of price hikes that mostly failed. But there are a few flies in the ointment.

Check out the charts below.

Let’s consider service centers first:

More than 40% of service center respondents say that they are raising prices to their customers, up modestly from our last survey. Nearly half say that they are keeping price unchanged. That’s the best reading we’ve seen since the price spike following the war in Ukraine. But this time, the uptrend was more modest and driven by more typical factors. Mills have announced price hikes of a combined $110 per ton ($5.50 per cwt) on sheet products since Thanksgiving. And they’ve gotten most of it. SMU’s HRC index stands at $695 per ton, up $80 per ton from $615 per ton before Thanksgiving.

What’s a little surprising – if you look in the upper right-hand corner – is that we’ve seen a slight increase in the number of service centers reporting that they’re lowering prices. It’s only 11%. It’s entirely possible that the uptick is just noise. But I’d suggest keeping a close eye on that one in our next market survey, results of which will be released on Friday, Jan. 20.

Here’s the same question asked of manufacturers:

We ask that question to manufacturers to keep service centers honest. Here, too, we’re seeing the strongest results we’ve seen since the outbreak of the war in Ukraine. And the latest reading is a lot better than what we saw in August/September when most service centers continued to cut prices even after mills made price-hike announcements.

What’s also notable is that there is a bit of disconnect. Only 12% of manufacturers say they are seeing increased prices from service centers, down from 20% in our last survey. That could be noise. But it’s also worth keeping an eye on in future surveys.

Other data mostly supports those who think that prices will continue to move up in the weeks ahead. This is one of my favorite survey questions – are people meeting their forecast:

Results over the last two months are improved compared to early November, which suggests that higher prices are not based solely on sentiment or momentum.

Another indication of a shift in the physical market – and not just in market psychology – is what appears to be a change in service center buying patterns.

Only 4% of service centers report that they are reducing inventories. Seventy percent say they are maintaining inventories. And 26% say they are building stocks. We haven’t seen a result that strong since the summer of 2021. To be clear, I’m not predicting that we’re getting back to a market that hot. There is no way we’re going back to nearly $2,000 per ton HRC. And, as I noted last week, mostly survey respondents don’t think we’ll break out above $800 per ton.

My point is simply that prices at or above current levels are probably sustainable at least in the short term. And I wouldn’t be surprised to see mills announce another round of price hikes on higher January scrap costs.

Could mills get greedy and announce too many price hikes? I can’t answer that. But I’ll leave you with one last slide to keep an eye on, this one about imports:

We’ve seen a modest increase in the number of survey respondents reporting that imports are competitive – 32% now, up from 19% in our prior survey.

If you drill down into the results, which you can do here, you’ll see that trading companies aren’t having much luck offering hot-rolled and cold-rolled products to US buyers. They report that the prospects of selling offshore coated, notably Galvalume, or plate to domestic consumers are better.

US mills tend to overshoot the market on the way up and on the way down. You could make the case that US mills brought sheet prices too low in early November. Might they overshoot to the upside later this quarter or in Q2?

Here is what some steel buyers and traders had to say about whether imports were attractive.

“Domestic still needs a month or two to make foreign steel more attractive.”

“Our customers are making more domestic buys vs imports now. But we are seeing more price checking for futures as domestic mills keep raising prices.”

“Depends on products. Bare Galvanized no. Pre-painted galvanized yes. Bare and pre-painted Galvalume yes. CRC and HRC, no.”

“No new Korean (HRC) offers yet and not sure if the price gap will be attractive enough.”

“Only countries like Australia or Mexico can be competitive (on CRC). No 25% Section 232 tariffs. I assume Brazil will also be competitive. But not to the West Coast.”

By Michael Cowden, Michael@SteelMarketUpdate.com

SMU’s Current Buyers Sentiment Index was recorded at +67, down 3 points from the +70 recorded two weeks ago (Figure 1). 

SMU’s Future Buyers Sentiment Index measures buyers’ feelings about business conditions three to six months in the future. Future Sentiment dropped two points to +68 vs. two weeks earlier (Figure 2).

Measured as a three-month moving average, the Current Sentiment 3MMA rose over two points to +62.83 compared to two weeks earlier. (Figure 3). 

The Future Sentiment 3MMA edged up a little over a point to +68 vs. two weeks ago. (Figure 4). 

What SMU Survey Respondents Had to Say:

“Hopefully, commercial construction will keep steady.”

“Good for plate products.”

“The future is unknown.”

“2023 will be a good year for plate.”

“We will scrap for what we get, but fundamentals are less than desirable.”

“The market drivers for higher pricing have mostly receded.”

About the SMU Steel Buyers Sentiment Index

The SMU Steel Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat-rolled steel products in North America regarding how they feel about their company’s opportunity for success in today’s market. It is a proprietary product developed by Steel Market Update for the North American steel industry. Tracking steel buyers’ sentiment is helpful in predicting their future behavior.

Positive readings run from +10 to +100. A positive reading means the meter on the right-hand side of our home page will fall in the green area indicating optimistic sentiment. Negative readings run from -10 to -100. They result in the meter on our homepage trending into the red, indicating pessimistic sentiment. A reading of “0” (+/- 10) indicates a neutral sentiment (or slightly optimistic or pessimistic), which is most likely an indicator of a shift occurring in the marketplace. Sentiment is measured via SMU surveys that are conducted twice per month.

We send invitations to participate in our survey to more than 700 North American companies. Approximately 45% of respondents are service centers/distributors, 30% are manufacturers, and the remainder are steel mills, trading companies or toll processors involved in the steel business.

Click here to view an interactive graphic of the SMU Steel Buyers Sentiment Index or the SMU Future Steel Buyers Sentiment Index.

By Ethan Bernard, Ethan@SteelMarketUpdate.com

We’ll talk about how steelmakers globally are working to reduce carbon emissions. We’ll also talk about the growing recognition that carbon needs to be accounted for when steel crosses international borders – whether that be a carbon border adjustment mechanism (CBAM) or another tool.

Our discussion will go into the nitty-gritty of whether the US and the European Union can come to a common agreement on how to handle carbon emissions by 2024, the target date set when the two sides agreed to scale back Section 232 on the EU. The big picture: Could a carbon border mechanism one day replace or come on top of existing duties and tariffs?

We know there are a vexing number of policies and platforms aimed at addressing decarbonization. But recall, too, the panic over pig iron last year. The EAF steel industry rose to that challenge, initially seen as an existential threat, within a matter of weeks. Could CO2 emissions be cut with that same combination of resourcefulness, improved processes, and sense of urgency?

Finally, we’ll talk about the current steel market. The steel industry has seen its best years since World War II in 2021-22. Can that success continue into 2023, or will steel have to learn to survive again in the face of stiffer economic headwinds?

We’ll take your questions, too! As always, we’ll keep it to about 45 minutes. You can (virtually) drop in, learn something — and then get on with your day.

PS – If you’d like to see past Community Chat webinars, you can find those here.

By Michael Cowden, Michael@SteelMarketUpdate.com

The market still says yes, and for a while, and so the overall contango remains intact. January last trades settled at $728/ton a $36/ton premium to the last index price. One likely scenario for a $728-type finish would be $692, $720, $740, $760, which would end it at $728/ton average for January on the nose. There are only two weeks of spot deal left to settle these final prints and the above scenario seems within reason, but a lot can change in a few weeks.

February and March then last settled at $775 and $780/ton, respectively, reflecting the markets expectation that we are going to keep moving higher, but that we will hit a peak here in Q1 before leveling off. Q2+Q3+Q4 spreads are not dramatic at the moment. For February to reach $775/ton on average, assume the above is true and we finish January at $760/ton. From there it is only a quick $30/ton over a short four-week February to average $775/ton. So March trading level reflects, as much as anything it would seem, the market’s lack of any sense of where we may go from there. Perhaps the market does tread water here for some time, but it’s unlikely to remain flat for months on end, let alone the balance of 2023, so something is likely to have to give here sooner or later, as markets usually do not move in a straight line sideway for very long in this world!

Here is how the forward curve looks as of 1/6/23:

Thanks for reading, and Happy New Year!

Editor’s note: Spencer Johnson has been trading HRC futures for 14 years at StoneX (previously FCStone).

Spencer O. Johnson
LME/Ferrous Trading
StoneX Financial Inc.
O- 212-379-5492
Spencer.johnson@stonex.com

Under Article XXI(b), any WTO member may impose trade restrictions it considers necessary for “essential security interests.” But the provision goes on to say that the actions may be taken only in three distinct situations. The most important of these situations for this case refers to measures “taken in time of war or other emergency in international relations.” The cases were brought in 2018. The WTO panel decision was announced in December.

The WTO panel first concluded that Section 232 actions violated the GATT. Under WTO agreements, members are bound by their tariff commitments unless an exception applies. Finding violations of GATT by imposing tariffs of 25% (steel) and 10% (aluminum) was not a surprise. The imposition of an additional 25% tariff on steel from Turkey (August 2018) and the tariffs on steel and aluminum “derivative products” (January 2020) were also found to violate the GATT.

These findings were a necessary preliminary step—if there were GATT violations, then the issue of whether Article XXI excused those violations was ripe for decision.

The US argued that Article XXI(b) allows any WTO member to determine that its “essential security interests” are at stake and that no other member may challenge that assertion. That argument did not win in the WTO.

The WTO panel ruled that it had the authority to determine if the challenged actions were based on an “emergency in international relations.” This is consistent with previous decisions. Then the WTO panel proceeded to the crux of the case. The WTO decided that global overcapacity in steel and aluminum did not amount to such an emergency because it did not amount to a “critical or serious” impact on international relations. 

The US reacted unusually vigorously against the decision. The US Trade Representative’s office said, “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement.” We’ll see about that.

The United States is certainly free to speak its mind about these issues. However, looking at the relevant WTO agreements, its position does not appear to be supported. The GATT itself, the Dispute Settlement Understanding and the Vienna Convention on the Law of Treaties, an internationally accepted guide to the interpretation of international agreements, permit a tribunal like the WTO panel to interpret the language of the agreements that are plainly under its jurisdiction. The panel’s interpretation was not outlandish. But reasonable people may differ.

Before anyone gets snippy about ceding national sovereignty over essential security decisions to a group of “unelected bureaucrats” in Geneva, it is important to consider the consequences of this decision.

They are not huge. While China, Norway, Switzerland, and Turkey may impose import restrictions on US products to compensate for the alleged injury caused, they may not do so for quite a while under WTO rules. Such compensation is not permitted until the decision becomes final. It is not final yet and may never be.

Under WTO agreements, losing parties may appeal to the WTO Appellate Body before throwing in the towel. I expect that the US will appeal this decision, which under current circumstances would put it in limbo because the US has refused to permit the Appellate Body to function. The Appellate Body has seven seats, and all seven are vacant. The Trump administration rejected all nominees to the Appellate Body beginning in 2019. The terms of all seven members of the Appellate Body have expired, and the Appellate Body has not functioned since November 2020. The Biden administration has continued Trump’s policy.

There is no one available to hear the appeal of this case. And any retaliation against US exports will not be authorized until the AB is reconstituted. There is no prospect of that happening any time soon.

Even if the US does not appeal, it can object to the imposition of trade restrictions under the Dispute Settlement Understanding. That would require another dispute settlement proceeding. That could take a couple of years to complete and would not become final without a functioning Appellate Body.

All told, the concession of sovereignty by WTO members over whether an “emergency in international relations” is largely theoretical. Before the creation of the WTO in 1995, countries could ignore adverse GATT decisions with impunity. Since 1995, only limited consequences attach to violations of trade agreements. The US can take these actions and face only limited consequences. Freedom of action in the national security arena, even if the action is irrational, continues almost entirely unabated.

The US reaction against the WTO decision points to a larger concern. The United States has clearly “fallen out of love” with the WTO and the related policies of international engagement and trade expansion. And the US is hardly alone. Japan’s Minister of Economy and Trade, Yasutoshi Nishimura, spoke last week about the need for basic WTO reform. And China has clearly disappointed those who hoped that China’s entry into the WTO would change that country’s behavior.

That attitude is understandable. But the US actions in defiance of WTO norms will hurt the chances for progress in rebuilding international economic engagement and peaceful competition. It may also damage adherence to international geopolitical rules that protect smaller nations from aggression by larger ones (the Ukraine war, for example).

Disputes will certainly arise under international agreements. When they do, the parties should consider whether losing these disputes is more important than preserving the rule of law among nations. The system is certainly not perfect. But fighting in court is better than fighting on the battlefield.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
Phone: (202) 617-2675
Mobile: (202) 250-1551
E-mail: lewis.leibowitz@lellawoffice.com

Financial Institutions Disagree in Their Forecasts for 2023

While year-out forecasts are never completely harmonized, this year’s forecasts coming from the largest financial institutions are a sign of just how challenging of an economic environment we will see in 2023. For example, Bank of America is forecasting a mild recession in early year. Barclays, Wells Fargo, and PNC bank are forecasting a recession mid-year, while J.P. Morgan and Deutsche Bank have a recession pegged for end of year. Morgan Stanley and Goldman Sachs forecast no recession.

The Federal Reserve has also continued to be active in their fight against inflation and will likely have another round of interest rate hikes coming. Recently, the Fed has been more positive, and continues to keep a watchful eye on both consumers and the job market. The Federal Reserve of St. Louis recently released a statement that mentioned stronger-than-anticipated GDP growth towards the end of 2022 as well as strong job market metrics. They even went as far as to mention that 2023 could be a year of disinflation as unemployment is below its long-run level and real GDP continues to grow. This positive news is a reminder that the unexpected event, and perhaps a catalyst for a stronger-than-anticipated 2023, could be the Fed nailing their inflation control policies, and the economy re-stabilizing after a hectic few years.

Downstream Effects

While overall GDP and economic growth might have been better than expected, this has not correlated with aluminum demand. As November shipment numbers for the US rolled in, shipments were down across the board. Extrusions were hit the hardest towards year end with close to a double-digit percentage drop in shipments both month over month (MoM) and year over year (YoY). More concerning, this brought year-to-date (YTD) growth to less than a 10th of a percent as the slowdown eats into beginning of the year growth trends. New orders were not much better, sitting at the lowest point over the last seven-plus years sans the Covid-19 shutdown-related recession. Sheet and plate fared better, but still took a hit down around 5% YoY and 10% MoM. The cause is likely two-fold. The first is a natural return to the seasonality of the industry after the post-pandemic demand frenzy. November and December are typically “wind-down” months. This trend was likely intensified by the lack of maintenance and downtime available to mills and extruders over the previous 18 months. Also, comparisons will be unfair YoY as last year was an anomaly with strong shipment volumes right up to year end.

This negative growth trend cannot all be attributed to those operational factors, with the second being a slowdown in raw demand. The housing market has slowed due to the increased interest rates. However, new residential housing permits and starts are inline with pre-pandemic norms. Automotive is still on the path to recovery as supply chains continue to improve, but have yet to hit previously forecasted levels. Other end-use sectors showing a notable drop in demand are consumer durables in the form of RVs and boats, which was expected, and a larger than originally expected drop in demand for aluminum cans. The latter of these has been due to price elasticity in response to fewer promotions for CSDs and higher pricing overall for alcoholic beverages.  

Other Regions Also in Demand Limbo

Other regions are also still sorting through economic uncertainties. China has started their recovery from the recent Covid-19-related outbreaks and Zero Covid shutdowns. However, this is still very much a work in progress. With their industry a key driver of construction end-use metal, all eyes will be on how fast B & C comes back in the region. Just last week there was a drop of just over 2% for the Shanghai Futures Exchange (SHFE) cash price of aluminum due to inventory volumes that exceeded the markets expectations and furthered demand concerns. Europe has also been struggling with inflation and energy costs. Despite natural gas prices regulating to pre-war in Ukraine levels, the region still is flirting with recession. A positive can be seen in India as it is in position to become the most populous country in 2023. The region has also focused on the modernization of much of their infrastructure, and will continue to attract investments. This puts India in position to be a potentially important piece of the 2023 demand picture.   

LME and Midwest Prices

London Metal Exchange prices have perhaps reacted to many of these negative outlooks and have fallen to a new six-month low around $2,250/ton. Previously, cash prices were stable in the $2,500-$2,300/ton range. However, the new year pushed it down past the lower end of that resistance level. Prices have started to recover slightly at the tail end of the first week, but still remain sub $2,300.

The new year also bumped up volatility for the Midwest premium again. The premium had been stable at around the 20-cent-per-pound mark, but there was a large contango forming on the CME. This has worked to push up the premium to $0.23-0.24 per pound in the first week of January, a $0.03-0.04 jump over 2022 year end. This upward movement comes as the demand challenges above hit producers, and freight rates have stabilized. Mid-year is still trading as high as $0.27 per pound, which means this upward trend will likely continue. It was thought that the previous levels were well below replacement and could not be sustained.   

Uncertainty has also hit the billet market as demand forecasting for extruders becomes a tougher task. This has driven some to forego on a yearly contract through the beginning of the year, and instead use spot deals to secure metal supply. While risky, the elevated levels of billet coming into the region will help, and prices continue to sit lower than last years contract price of $0.25 per pound.  

By Matthew Abrams, Research Analyst, CRU Group

In consideration of freight costs, handling, and trader margin, we add $90 per ton to all foreign prices to provide an approximate “CIF US ports price” that can be compared against the SMU domestic HRC price. Buyers should use our $90-per-ton figure as a benchmark, adjusting it as necessary based on their own shipping and handling costs. If you have experience importing foreign steel and want to share your thoughts on these costs, we welcome your insight and comments: Brett@SteelMarketUpdate.com.

Far East Asian HRC (East and Southeast Ports)

As of Wednesday, Jan. 4, the CRU Far East Asian HRC price increased $4 per ton week over week to $553 per net ton ($610 per metric ton), up $36 from levels one month prior. Adding a 25% tariff and $90 per ton in estimated import costs, the delivered price of Far East Asian HRC to the US is $782 per ton. The latest SMU hot-rolled average is $695 per ton, up $10 from our previous price update and up $55 compared to our price one month ago.

Therefore, US-produced HRC is now $87 per ton cheaper than steel imported from Far East Asia. This is down from a spread of $91 per ton one week prior. One month ago we saw a spread of $96 per ton, the largest price appeal that domestic HRC has had over Far East Asian HRC since September 2020. Prior to October, Far East Asian prices had held the advantage since mid-March (the differential peaked at $375 per ton in May). The widest price advantage recorded for Far East Asian prices was just over a year ago, at $847 per ton in September 2021.

Italian HRC

Italian HRC prices increased $3 per ton week over week to $629 per net ton ($693 per metric ton) this week, $42 per ton higher than prices seen one month prior. After adding import costs, the delivered price of Italian HRC is approximately $719 per ton.

Domestic HRC is now theoretically $24 per ton cheaper than imported Italian HRC, down from a spread of $31 per ton last week. One month ago we saw a spread of $37 per ton, favoring domestic prices. In mid-November we saw a spread of $57 per ton, the largest margin in favor of US prices recorded since March. Domestic steel has held this price advantage since late October. Before the removal of the 25% Section 232 tariff, the spread just over one year ago reached $577 per ton in November, the largest in SMU’s data history.

German HRC

CRU’s latest German HRC price increased $12 per ton week over week to $678 per net ton ($747 per metric ton), up $57 per ton compared to one month ago. After adding import costs, the delivered price of German HRC is approximately $768 per ton.

Accordingly, domestic HRC is now theoretically $73 per ton cheaper than imported German HRC, up from a spread of $71 per ton one week prior. Four weeks ago prices between these regions were also $71 per ton apart (with US prices holding the advantage). Domestic HRC has held this price advantage for all but three weeks since late July. German HRC held the price advantage for the three months prior to that, having reached a 2022 high of $164 per ton in May. Prior to the removal of the 25% tariff, the October 2021 spread of $504 per ton was the widest in SMU’s data history.

Figure 4 compares all four price indices and highlights the effective date of the tariffs. Foreign prices are referred to as “equalized,” meaning they have been adjusted to include importing costs (and tariffs in some cases) for a like-for-like comparison against the US price.

Notes: Freight is an important part of the final determination on whether to import foreign steel or buy from a domestic mill supplier. Domestic prices are referenced as FOB the producing mill, while foreign prices are CIF the port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel. When considering lead times, a buyer must take into consideration the momentum of pricing both domestically and in the world markets. In most circumstances, domestic steel will deliver faster than foreign steel ordered on the same day.

Effective Jan. 1, 2022, the traditional Section 232 tariff no longer applies to most imports from the European Union. it has been replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. SMU still includes the 25% Section 232 tariff on foreign prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

By Brett Linton, Brett@SteelMarkeUpdate.com

If you need help accessing the survey results, or if your company would like to have your voice heard in our future surveys, contact Brett@SteelMarketUpdate.com.

By Brett Linton, Brett@SteelMarketUpdate.com