Are steel prices near the bottom?

Figure 1. Steel buyers are taking a wait-and-see attitude when it comes to new material purchases. With prices dropping, many want to see if the downward trend will continue.

Flat-rolled steel prices have declined by more than $100/ton since this summer, to the benefit of many fabricators and manufacturers, but steel producers are hoping to reverse that trend.

Leading flat-rolled steelmakers, including Nucor, U.S. Steel, California Steel Industries, ArcelorMittal USA, and USS-POSCO, announced a price increase of $40/ton for hot-rolled, cold-rolled, and galvanized steel products on Oct. 10-11. Noticeably absent from the announcement was NLMK, which normally would follow suit. Also absent was AK Steel, which typically announces price changes to the public via a press release on its website. So there may not be complete unanimity among the mills on steel pricing.

Steel distributors and steel users report fairly strong demand for their products. The Trump administration’s tariffs have reduced the competition from foreign imports, as intended. And the costs of steelmaking raw materials, including iron ore and ferrous scrap, are up. So why the decline?

One contributing factor may be an overabundant supply of steel in the market. The 25 percent tariffs have raised the price of foreign imports, but foreign mills continue to ship to the U.S. Simultaneously, domestic mills continue to crank out steel at near full production. U.S. raw steel output for the week ending Oct. 13 totaled 1,881,000 net tons with the mills operating at 80.2 percent of capacity. That weekly production figure was the highest since Jan. 10, 2015, while mill utilization was at a four-year high not seen since Aug. 23, 2014.

The market has kept a close eye on talks between the United Steelworkers and the two biggest integrated mills, U.S. Steel and ArcelorMittal. Union members had authorized a strike if management refused to share the record profits reported by the mills in recent quarters. A work stoppage of some duration could have tightened supplies and given steel prices a boost. As it turned out, the USW and U.S. Steel have reached a tentative agreement on a new labor contract that reportedly gives union workers a 14 percent increase over the next four years. Talks continue between the USW and ArcelorMittal, but a strike appears unlikely.

Lead times are a telling sign of demand at the mill level (see Figure 1). Steel Market Update (SMU) data shows that lead times for spot orders of hot-rolled steel were less than four weeks in mid-October, down from nearly six weeks in March. That suggests the mills are not as busy as earlier in the year. About 88 percent of the steel buyers SMU polled recently report that the mills are willing to negotiate on price to fill their order books. That may quickly change in light of the recent price increase announcements, however.

Downward-moving prices tend to gather momentum as they erode demand. As the thinking goes, Why buy steel today if it looks like it will be cheaper tomorrow? Many service centers and end users have taken a wait-and-see attitude for the past few months, buying only for their immediate needs. Such tight inventories help to explain the uneven demand at the mill level.

Just because the mills announced a price hike does not mean they will get it. It depends on what the market will bear. Eight out of 10 steel buyers surveyed by SMU the week of Oct. 15 said they doubt the new price will “stick.” Some believe the mills will be able to collect some portion of the $40 increase. Indeed, were they to be honest, the mills would probably admit to being satisfied if the price increase does nothing more than put an end to the downward spiral.

Has the market found a bottom? That’s unknowable until prices actually increase. Here are the current steel prices (FOB mill, east of the Rockies) as measured by SMU:

• As of Oct. 15, hot-rolled coil prices averaged $805/ton ($40.25/cwt). Hot-rolled lead times were just three to five weeks.
• The price for cold-rolled coil averaged $920/ton ($46.00/cwt). Cold-rolled lead times were five to eight weeks.
• In coated steels, the benchmark price for 0.060-inch G90 galvanized coil averaged $1,008/ton, with galvanized lead times at five to nine weeks. Galvalume 0.0142-in. AZ50, Grade 80 coils were priced around $1,241/ton, with lead times of seven to 10 weeks.

Steel plate is working on a different supply and demand scenario from flat-rolled. Demand for steel plate still outpaces supply as mills continue to allocate orders. Plate had an average price of $995/ton ($49.75/cwt) FOB delivered to the customer’s facility as of mid-October. Customers could expect to wait six to 10 weeks for delivery of plate on controlled order entry. Plate prices remain stable, and many plate buyers anticipate a January price increase out of the domestic mills.

SMU has adjusted its Price Momentum Indicator from “lower” to “neutral” on all steel products, as the current direction of steel pricing is unclear, and it does not want to influence the market.

When it comes to steel prices, fabricators and manufacturers are largely at the mercy of market forces. With the mills actively attempting to stop the slide and another price hike right around the corner in the new year, prices appear more likely to move up than down.