US HRC: cautious outlook boosts spot availability

The US hot-rolled coil (HRC) market softened this week on greater spot availability, and as buyers hesitated to commit to tonnage in the expectation of lower prices.

The Argus US HRC index fell by $10.40/st to $877.60/st ex-works Midwest on six reported deals from buy and sell-side sources, and indications of repeatable value.

Real demand still appeared robust, but service centres were buying hand-to-mouth in expectation of further declines. Buyers were still taking minimum tonnages through their contracts, which boosted spot supply and meant mills were offering more wiggle room on prices.

Electric arc furnace producers were also able to cut prices without sacrificing much margin, given the anticipated softening in scrap costs for September. Sources suggest scrap could shed $15-25/t, with dock-side material moving inland given weak export buying.

Additional tonnage from Granite City was also weighing on the market, according to one seller, while another said JSW's Ohio plant could dampen sentiment with its newly acquired enhanced range of slab sizes. The mill was reportedly selling below $800/st ex-works. A buyer said the fact this was impacting pricing sentiment showed a general lack of liquidity in the wider marketplace. "It's not nothing, but not massive, not enough to sway the market much [usually], but it is right now," he said.

Lead times from integrated mills had shortened to 5-7 weeks, from 8-9 in spring, the buyer said. Another said a raft of transactions for late-August production from mini-mills had been a primary driver of the market slipping.

"It is September [now] and unless you are panicked about September, you can wait a bit longer. However, if you wait, it probably gets cheaper," he said.

The new US-Mexico trade deal and Canadian-US discussions were a talking point, and Turkey's duty being doubled was less of a factor. The anticipated upward pressure from Turkey's removal has also not materialised. US pricing being divorced from the rest of the world was also a key factor. European sellers said they were moving tons into the US, but not more than usual — one said it would be "suicidal" to try and capitalise on US pricing.

Despite the continued softening, some still expected the market to bounce back, given strong fundamentals and a lack of import penetration. Mills and buyers will also be finalising their 2019 deals this month, and sellers will want to prevent spot levels slipping too much because it would be leverage for service centres in the discussions.

Inventory levels were quite low, although they have built up at service centres handling tube and pipe business, one seller said. He cited continued appetite from the yellow goods sector, despite the seasonal slide in apparent demand.

Service centres have been working to reduce inventory rather than restock, as they do not want to get caught with high-cost material in a falling market.