US steel mill outages unlikely to shift market

Steel mill outages through the remainder of the year will take out nearly 600,000 short tons (st) of flat-rolled production, but few believe that will alleviate persistent oversupply.

The outages, mainly for maintenance, will run from September through November, according to current plans by US-based steelmakers and market participants. That would average out to approximately 6,450st/day across the three months based on the mills' rated capacity.

Still, the flat-rolled outages are expected to have minimal volume impacts on the markets, sources said, pointing to persistent oversupply and the multiple flat-rolled steel mills that are ramping up in the back half of the year. Combined, those mill additions, when ramped up fully, will add 18,700st/day of rated capacity to the market, far outstripping the supply taken out of the market.

For the week ending 13 August daily production in the entire US steel market which includes flat, long, plate, and other steel mills was 248,900st, with capacity utilization rates at 79pc, according to data from the American Iron and Steel Institute.

Since mid-April when the Argus weekly domestic US hot-rolled coil (HRC) Midwest and southern ex-works assessments peaked at $1,500/st, prices have fallen by 46pc to $812.25/st. HRC prices are down by 49pc since the beginning of the year.

Prices have fallen as service centers have held off buying in the face of weak demand from consumers, who have been hit by shortages of labor and parts. Fears that the US is either already in or on the brink of a recession have also prompted some pull-back in purchases.

Many have been disappointed by the lack of semi-permanent or permanent idling of flat-rolled steelmaking capacity in a more sustained manner to prop up prices. This includes some service centers, typically buyers of steel, as falling flat-rolled prices have devalued their existing inventories. The lack of such closures and a recent decline of $70/gross ton (gt) for #1 busheling scrap, a key steelmaking raw material input, have led many to doubt that US steel prices have much room to recover. A recent $50/st flat-rolled steel price increase by electric arc furnace (EAF) steelmaker Nucor appears to have fallen flat for now. The price increase, announced on 8 August, has not drawn buyers at those prices.

In past markets, when flat-rolled prices were at lower levels, integrated steelmakers were seen as the high-cost producers and were expected to bear the brunt of production curtailments.

Now, with raw material inputs like #1 busheling scrap and pig iron at higher levels, some think EAF steelmakers may be the high cost producers needing to cut production instead. Integrated steelmakers are thought to currently have some cost advantages through the control of the majority of their input costs from iron ore mines to steel finishing facilities and even maintain the option to buy as much as 30pc of their melts as scrap should prices decline.

By Rye Druzin