US HRC: Standoff continues as buyers await lower prices

Potential industrial action may be getting the headlines in the US hot-rolled coil (HRC) market of late, but the prolonged buyers strike has had more impact on pricing so far.

The Argus domestic US HRC index was assessed $12.25/st lower at $862/st ex-works Midwest today, based on six deals and indications from buy and sell-side sources.

Some mills with less contract exposure have been competing to take business from fourth-quarter deals done at index minus $20-40/st. This has upped spot availability somewhat, but liquidity remains low, with buyers not wanting to build inventories or throw money at a falling market. Service centres have been trying to work through volumes, rather than buy more, while tubers and their distributors have also gone quieter. Compressed margins headed into the fourth quarter meant buyers did not want to be holding high-priced inventory.

"Are you really going to build inventory in such a high priced environment?", one trader asked. "I am hesitant to jump in right now as it could be weaker next week," a large buyer in the Midwest added.

Another trader has been selling small quantities out of Houston port at $840/st. "People send an inquiry for four coils, and we say what can we do to get you to take eight? They will not take eight," he said, further underlining the hand-to-mouth purchasing attitude.

Mexican mills were reportedly aggressive into the south-west and one buyer reported seeing 1,000t of HRC out of Germany at $770/st DDP. He said he purchased 150t at $840/st from a mini-mill in the Indiana region, but admitted this was the lowest level in the market from established sellers.

Some buyers said material offered out of a newly restarted Ohio mill were also having something of a negative impact, although it has a limited range of sizes.

Bearishness was the order of the day, with more sources agreeing the market had come off. Nevertheless, there was a belief among some things could snap back once those mills chasing tonnes get large orders from big buyers. "A couple of big cows will do some buying and the herd will follow. With fundamentals and imports fairly well bottled up, [I] just don't see another drop as likely," a trader said. He believed the impact of lower import arrivals had not truly manifested in the marketplace as of yet. But nobody knew where the perceived nadir might be.

A big seller agreed that buying would come back strongly once inventories have been whittled down over the next six weeks.

Given the high utilisation rates at mini-mills in recent months, and the fact people seemed reluctant to commit to large imported tonnages, an east coast buyer thought the market could tighten up once buyers return. "Usually the minis flex up and provide extra supply. [Without that] we could have a supply squeeze," he said.

Another buyer said potential labor issues, with a strike ballot at US Steel, could spark some panic buying. Most seemed to be dismissing industrial action as there has not been any for around the last 30 years. "You cannot take the profits they have and then play poor-boy at union talks," the buyer said.

Few buyers had received 2019 contractual offers from mills, but there was some discussion about what the wider pricing mechanism could look like next year. One buyer said a big service centre might look to move some of its contractual tonnage towards a spot basis as it was unhappy with the index-linking arrangement. At the same time, mills with more spot exposure would have profited more handsomely than contractual sellers over periods this year — although those mills with less contract business have had to be the most aggressive in the falling market to try and fill rolling programmes.

Some sources also concurred there would be more inclination to reduce import offtake next year and opt for domestic tonnage, in the knowledge the steel is more likely to arrive and has less chance of facing policy disruption. The sudden increase in Turkey's duty to 50pc has been a headache for the market, a blow to importers left having to pay the extra tax, and has done little to whet import appetite.