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Steel prices cycle down from early 2023 spikes
Metal fabricators, manufacturers, and service centers continue to wonder where the bottom is
- By Michael Cowden
- May 16, 2023
The drop in sheet prices that we’ve seen at the mill level is now spreading downstream—an abrupt shift from just a few weeks ago, according to our latest survey data.
More service centers are cutting prices. I had expected to see an increase in the number of service centers reporting that they were reducing prices (see Figure 1). I did not expect to see such a big jump so suddenly.
Only 4% of service center respondents to our survey at the end of April said that they were lowering prices. That number has since skyrocketed to 50%.
Here is some context: We saw that number rise slowly in late 2021 as supply caught up to demand and then overshot it. What’s happening now more closely resembles what we saw after Russia’s invasion of Ukraine last year: a spike in service centers’ raising prices, followed by an equally sharp decline once the initial shock of the invasion passed.
The drivers are different this time. Prices surged in Q1 2023 when expectations of an economic slowdown and a sheet supply glut didn’t materialize. We were instead greeted in early 2023 by a resilient economy and a supply deficit with imports low, Altos Hornos de México's halting production, and new capacity slow to ramp up.
Many of those factors have reversed. Fears of a recession have been kicked into the second half of 2023. Certain new capacity continues to ramp up slowly. But some of you might be getting calls from mills you might not have heard from for a while as they are looking to sell their increased capacity. Import prices for summer delivery to the U.S., meanwhile, remain sharply lower than current domestic prices.
Figure 2 is a reminder of how big the gap is between U.S. hot-rolled coil prices and HRC prices in the rest of the world.
We’ve also seen a big change in inventory management. Service centers and manufacturers in late April were mostly looking to maintain their inventories. Now many are looking to slash stocks (see Figure 3).
In late April, only 15% of manufacturer respondents and 8% of service center respondents said they were reducing inventories. Those figures have jumped to 40% and 31% respectively.
Why are so many steel consumers now cutting prices and looking to move inventory? Here’s what some of them told us:
- “We’re only buying when we absolutely need steel.”
- “Only buying for contracted work. Holding off on stock inventory purchases.”
- “Buying to demand and forecast. No speculation to speak of.”
- “No reason to buy right now as the slide starts and picks up the pace.”
- “We believe prices will drop over the next few months.”
- “Everyone is waiting for prices to crash, so no reason to buy.”
- “High inventory levels and lower demand than anticipated.”
- “Only buying what is 100% necessary. Expect some holes in the inventory.”
That’s a bit dark. I’ve been ending these columns as well as recent webinars and speaking engagements on an optimistic note. I’ll do that again today.
Most respondents, 85%, continue to say that they will meet or exceed forecast (see Figure 4). We’ve seen that trend in place most of this last year. It remains there now despite what I outlined above and what we’ve noted in recent newsletters—reduced mill shipments, shorter lead times (particularly for galvanized material), and the mills’ willingness to negotiate lower prices.
But the near future might be looking a bit more cloudy. Only 7% say they will exceed forecast in May, down from about 30% in March and April. Demand for steel has not stopped, but it’s a little softer than it had been.
Is it just a case of the summer doldrums arriving a little earlier than usual? Or is it something more than that? As it stands now, most survey respondents, 65%, think prices will bottom in July, August, or later (see Figure 5).
Here is what some of them had to say:
- “We will see incremental decreases over the next 30 to 60 days and hit a low sometime in August."
- “It’ll be a pretty steady slide of $15 to $20/ton per week for a while. Maybe we bottom in the late summer?”
- “The descent will begin in later July and continue through the end of November.”
- “Futures are dragging downward, and there are no announcements from mills … to artificially boost prices.”
- “I predict a long, slow ride down as the economy cools.”
- “Most of the commodities have already started declining, and the steel market usually lags two months.”
- “Offshore cost is 25% lower than domestic U.S., and demand is slowing with supply increasing.”
- “There will be a slow and steady slide back to ‘normal’ pricing.”
In short, the consensus is that prices will continue to fall over the next two months. But a significant minority of survey respondents think that prices have already bottomed or will soon.
Said one respondent in that camp: “Demand is picking up in a few key sectors of the industry. Even though scrap continues to drop, there is light at the end of the tunnel for price leveling.”
SMU Steel Summit
I know some of you have already registered and booked travel for Steel Summit Aug. 21-23 in Atlanta. You’re not alone. Nearly 500 people have already done so, which means we’re running ahead of last year’s record attendance.
That also means our significantly discounted room blocks are going quickly. Don’t wait until the last minute. Visit here and get your discounted hotel rate now!
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The Fabricator is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The Fabricator has served the industry since 1970.
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Michael Cowden
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