US steel prices rising despite higher mill utilization

When US steel production returned to pre-Covid levels, many in the US steel industry said that would mark the beginning of a plateauing of the unprecedented 10-month rally in prices.

So far, they have been wrong.

For the last three weeks the US steel capacity utilization rate has remained at or above pre-pandemic levels of 80pc, according to the American Iron and Steel Institute (AISI). The higher utilization rate indicates that there is more steel available for buyers in a previously supply-constrained market.

Over those three weeks, the Argus US Midwest hot-rolled coil (HRC) assessment has increased by 2pc, or $33.75/short ton (st). That is similar to a typical pre-pandemic price increase, which generally were $40/st when announced by steelmakers.

The unprecedented price rally--which has led prices to nearly quadruple since hitting a low of $450/st in mid-August 2020--has continued uninterrupted, and some wonder what it will take to stop it.

Indiana-based electric arc furnace (EAF) minimill steelmaker Steel Dynamics (SDI) said today that it expects to post record profits in the second quarter and that continued demand and "historically low flat roll steel inventories" will lead to even stronger third quarter results.

SDI's note on low inventories has been echoed by steel service centers across the country. With steel prices at record highs, few if any buyers are looking to restock depleted steel inventories with product that has does not already have a buyer. One service center told Argus that in the last week it was offered 240st of cold-rolled coil (CRC), but only bought 100st because it could not find buyers for the remainder.

Concerns have also grown that supply could get even tighter. North American automakers are in the fifth month of dealing with semiconductor-related production disruptions, which have cut volumes at some steel processors and made some steel available on the spot market. Recently some companies have taken steps to return idled auto production online, with Ford restarting production of its best-selling F-150 full-size pickup truck, while General Motors plans to ramp up its full-size truck production in mid-July.

The automakers are trying to make up for lost ground, with approximately 755,000 vehicles marked as unrecoverable by consultancy AutoForecast Solutions due to the semiconductor-related production cutbacks. New vehicle inventory coming into June sat at 1.78mn vehicles, or 35 days supply, a historically low level and down from the 2.24mn in inventories at the end of April, according to Cox Automotive.

This could lead to suppressed auto demand for steel rebounding in the coming weeks, potentially tightening the spot steel market further.

Imports, which traditionally have come into the US during times of high prices as a lower-cost alternative, have also not been arriving in sufficient numbers or at substantial discounts to impact the domestic market.

Increased costs due to rising global prices coupled with the 25pc Section 232 steel tariffs imposed by then-president Donald Trump in March 2018 have kept many imports at bay.

Prices for HRC fob Tianjin, China, have risen by 41pc since mid-February to $905/metric tonne (t) ($821/st). HRC prices fob Turkey are at $1,110/t, 51pc higher than their mid-February price level.

In Europe, tight supply has led HRC ex-works Italy prices to rise to €1,120/t ($1,343.63/t), up 61pc from mid-February, while HRC ex-works northwest Europe has increased by 65pc since mid-February to €1,166.25/t.

In April, total steel imports into the US were just under 2.4mn t (2.64mn st), a 5pc decline compared to a year prior, according to US Commerce Department data. But hot-rolled sheet imports totaled 206,000t, nearly double the 105,000t imported in the same period of 2020. Year-to-date through April, total steel imports have increased by less than a percentage point to 8.42mn t compared to the same period of 2020, while imports of hot-rolled sheet--the building block for all other flat rolled products--have risen by 32pc to 697,000t.

Some traders said an increase in flat-rolled US imports should show up from June through August, as tons booked earlier in the year are unloaded. But few believe they will come in enough quantity--or at the right price--to fill the gaping inventory hole left by pandemic austerity and high-price anxiety.

By Rye Druzin