US flat steel prices have posted a steep rally in the fourth quarter but prospects of falling demand threaten the longevity of those gains in the first quarter of 2024.
The Argus US hot-rolled coil (HRC) Midwest ex-works assessment has jumped by 64pc since hitting a low of $670/short ton (st) in September, rising to $1,100/st on 26 December.
Supply tightness and the view of service centers that an automotive strike that began in mid-September would be more harmful than it was, combined with multiple large spot purchases at the bottom of the market to tighten supply. HRC lead times have jumped from 4.5 weeks at the beginning of September to seven weeks as assessed on 26 December.
Hot-dipped galvanized (HDG) coil lead times jumped even more dramatically, from six weeks to nine weeks, while prices have rocketed up by 55pc to $1,330/st.
Service centers and some mill contacts expect prices to level off in either February or March, as demand in some sectors is expected to fall by 10pc or more, and imports purchased at the beginning of the rally in October and November arrive. Tight supply, which was originally driven by the removal of 1mn st of production in September and October for mill maintenance, is expected to lessen in the coming months. Mills also lowered utilization rates in the third quarter, according to an Argus analysis of mill data. No major set of US steel mill maintenance programs for 2024 has been announced yet.
Multiple new or expanded mills have either struggled to ramp up production or have had conservative timelines. Those mills are expected to produce more consistently next year, adding to supply overhangs that have persisted in 2023.
US Steel sale, scrap will weigh on 2024
The proposed sale of integrated steelmaker US Steel to Japanese steelmaker Nippon Steel could serve to upend the market, with many wondering what new owner could do with US Steel's footprint.
US Steel has already indefinitely idled the remaining 1.4mn st/yr blast furnace at its Granite City steel mill in Illinois, while keeping the rolling operations running.
In the second half of 2024, US Steel expects to bring on line the 3mn st/yr Big River Steel 2 facility in northeast Arkansas, while ArcelorMittal is planning to bring its 1.65mn st/yr electric arc furnace (EAF) on line at its Calvert, Alabama, rerolling mill, which is a joint venture with Nippon.
Scrap prices have been another tailwind for steel prices, with #1 busheling pricing rising by $70-90/gross ton (gt) in December, depending on the region. The scrap price increases, while lower than the overall rise in flat steel prices, could pressure the steel industry to keep prices elevated for longer, as raw material costs threaten to reduce margins.
Imports of flat steel products into the US have continued to be negligible, reducing the amount of supply available, with HRC volumes down year over year for 18 of the last 21 months. Overall imports have fallen since June 2022. Cold rolled coil (CRC) and HDG volumes have fallen by double digits for most of the last 15 and 19 months, respectively.
Many expect imports to rise in the latter half of the first quarter and into the second quarter, as a number of buyers went off shore to source material from cheaper suppliers, including countries that have to pay the 25pc Section 232 duties. How large those volumes end up being could play a key factor in the length of the current US rally.
