The U.S. flat-rolled steel market has been in a state of flux in recent months. Prices, have recently been on a steady decline since the end of 2023. This has caused concern amongst ArcelorMittal, Nucor, and Cleveland-Cliffs, who have recently announced price increases to halt the slide.
Recent Price Trends
- HRC Prices Remain Depressed: Hot-rolled coil (HRC), a benchmark product in the flat-rolled steel market, has seen its price drop by 22% since its peak at the end of 2023. This has led to a search for a new price floor.
- Plate Prices Diverge: Unlike HRC and other flat-rolled products, plate steel prices have remained relatively stable, showing a divergence from the broader market trend.
Steelmakers Fight Back: Price Increases Announced
In an effort to arrest the decline in flat-rolled steel prices, major U.S. steelmakers like ArcelorMittal, Nucor, and Cleveland-Cliffs announced price hikes in early March 2024.
- Nucor and Cleveland-Cliffs Lead the Charge: Both Nucor and Cleveland-Cliffs raised prices for HRC, CRC (cold-rolled coil), and HDG (hot-dipped galvanized) steel products. Cleveland-Cliffs took the most aggressive stance, setting a new minimum HRC price of $840/st, the highest in the market.
- ArcelorMittal Follows Suit: Matching Nucor’s move, ArcelorMittal implemented a minimum HRC price of $825/st, bringing its pricing more in line with competitors.
Market Uncertainty: Will the Price Hikes Work?
The jury is still out on whether the price increases will be successful in halting the downward trend. By the first week of March, the average HRC price was already close to the new minimums set by the steelmakers. This indicates that the market may not readily accept the higher prices.
Unlike the recent effort by Cleveland Cliffs in January to raise prices, this round of increases seems to have garnered support from Nucor and ArcelorMittal, adding to the likelihood that this will stabilize steel pricing in the market.
Shifting Market Dynamics
The price hikes announced by steelmakers came amidst a significant shift in the market structure. Traditionally, the steel market has exhibited futures prices that trade lower than spot prices. This indicates that market participants anticipate lower prices in the future.
- Early 2024: A Shift:Â In early 2024, the spread between futures and spot prices narrowed significantly. At one point, spot prices held a premium of $244/st over futures prices, the highest spread since June 2023.
- Market Flips: However, by early March, the market flipped, with futures prices trading higher than spot prices. This suggests that market sentiment may be shifting, with some anticipating a future rise in prices.
Futures Market as a Leading Indicator
While rising futures prices don’t guarantee a rise in spot prices, there is a strong correlation between the two. Historically, futures prices tend to change direction before spot prices do, making them a valuable leading indicator. The high correlation between the two price points suggests that a rise in futures prices could eventually lead to higher spot prices.
Mixed Signals: Mill Lead Times and Order Inquiries
There are some mixed signals emerging from the market. While some steel mills report an increase in inquiries for large-volume orders, these inquiries haven’t yet translated into actual buying at the new higher prices. Additionally, mill lead times, which tend to lengthen when demand increases, remain relatively short, indicating that the supply glut may still be dragging prices down.
Planned Outages and Potential Impact
Several U.S. mills have planned maintenance outages in the coming weeks. These outages could help tighten supply in the short term, potentially aiding price stabilization. However, without a significant increase in demand, these the outages may not have much effect.
What factors normally impact steel prices?
- Strong Demand: An increase in demand can be fueled by government stimulus programs and pent up consumer demand negatively impacted by higher interest rates. This can led to a surge in demand for steel across various sectors, including construction, automotive, and manufacturing.
- Supply Chain Disruptions: Steel mills can face challenges in acquiring raw materials and managing logistics, leading to production constraints.
- Rising Input Costs: The cost of raw materials used in steel production, such as iron ore, coking coal and scrap, can also affect steel pricing. This puts additional pressure on steel producers, who are forced to raise their prices to maintain profitability.
Conclusion: A Wait-and-See Approach
The success of the ArcelorMittal, Nucor, and Cleveland-Cliffs price hikes remains to be seen. The coming weeks will be crucial in determining whether they can regain control of the market trend. If prices continue to decline, further production cuts could be implemented by steel mills. However, a rise in orders and a sustained increase in futures prices could signal a potential reversal of the current downtrend.
Sources:
Metal Miner : Raw Steels MMI: Mills Lob Price Hikes at Bearish Steel Prices
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