US HRC: Index slips as some mills compete for business

US steel mills will be fighting hard to stem the tide of ebbing prices as the fourth-quarter and 2019 contractual talks approach, sources said today.

The Argus domestic US hot-rolled coil (HRC) index dipped to $874.25/st ex-works Midwest on the back of six reported deals and indications from buy and sell-side sources.

Mini-mills operating on lead times as low as two weeks were cutting prices towards contractual levels to move product, most sources agreed. Deals from such mills were heard at $860/st, and as low as $840/st for large amounts of product. Average lead times were around 4.5 weeks, according to sources.

Some mini-mills were seeking additional spot sales for October-November, as contractual buyers were still taking their minimum requirements. "If domestic mill lead times contract they will reduce their price, [it is] a truism like death and taxes," one buyer said.

At the same time, large integrated sellers and one major electric arc furnace (EAF) steelmaker were trying to defend $880-900/st, possibly with a view to 2019 contractual talks in the coming weeks. Lead times at these mills were also more stretched, meaning they did not have to compete for business to the same extent.

"We have some lead times deep into the fourth quarter, not because of us not wanting to reduce prices, but we do not have to because of our portfolio of customers," a seller at one integrated mill said. Deals done by EAFs at $860/st were to close out third-quarter production and were not repeatable, he said.

Buyers were reluctant to approach the year-end with more steel than necessary, as most thought there could be further slippage in spot pricing and did not want to be long in the uncertain environment. The Chicago Mercantile Exchange's December HRC contract was trading at $790/st today, down by $11/st from the previous settlement.

One buyer said he had purchased South Korean HRC last week at very competitive levels of $730/st DDP Houston, but levels were usually above this. Another said that the next round of offshore pricing would need to be substantially lower than the $780s/st levels seen recently, especially to incentivise Midwest buyers where domestic mills have a freight advantage. Turkey was surprisingly looking to re-engage despite its 50pc duty, one buyer said.

Service centre volumes were reportedly steady in August considering the seasonally slower market, but margins were under pressure after the steep increases in mill prices seen since the first quarter of the year. Service centres thrived in the first half on the back of lower-cost inventories, but have had a tough time passing off increases since.

Regarding annual deals for next year, one buyer said that he thought they would be rolled over at $40-50/st discounts to the published index, in line with this year. But some may seek higher extras.