US HRC: Talk of rebound louder despite softening

The US hot-rolled coil (HRC) market continued to soften this week, with at least one mini-mill matching contractual pricing to move supply.

The weekly Argus US domestic HRC index fell by $18.75/short ton to $843.25/st ex-works Midwest on six reported deals and seven indications from buy and sell-side sources.

Price discovery continued to be clouded by the wide array of offers in the market. Integrated mills were still at $880/st and above in some cases, while electric arc furnace-based (EAF) producers were heard in the $840-850/st range, although one was above this level. One Ohio-based re-roller was heard offering at $770/st ex-works and finalising deals at lower prices, while an EAF was selling at $820/st for volumes below 1,000t as it looked to fill orderbooks, according to buyers. One seller said this EAF was at a low price to entice buyers to purchase outside their index minus deals.

Pricing in the south was also heard to be under pressure, with two EAFs competing for supply.

But sellers were increasingly vocal that the market would bounce back when large buyers return to the table, satiating hungry mills and driving narrow lead times further out. This was unsurprising, as they were eyeing 2019 contractual talks and did not want reference indices to slip too much as it would reduce their leverage. Mill representatives were being told to try and reduce discounts to the reference index in their negotiations. Buyers were also expecting the bottom to be reached shortly.

"The herd is still on alert looking for the wolf and munching its cud. A bell will ring in the next few weeks and they'll come back," one trader said, suggesting that when a few large buyers return most will follow suit.

Mill order books could fill quickly once buyers return, with the supply chain thinning on hand-to-mouth procurement and a likely reduction in import volumes. Traders struggled to move commodity grade HRC into the US at competitive levels, although there was still talk of Mexican mills being aggressive into Houston. US flat service centre shipments were up by a brisk 9.2pc year-on-year in August, and there was a marginal stockbuild, Metals Service Center Institute data cited by investment bank Jefferies show.

With mini-mills that typically flex output up to fill gaps already running at or close to 100pc, there is not much surplus output in the system if apparent demand rises quickly, according to some. There are also suggestions that a slew of linepipe projects could further tighten the supply chain.

Most sources were downplaying the likelihood of strike action at Pittsburgh-based US Steel, but there was also a vote in favour of strike action at Luxembourg-based steelmaker ArcelorMittal. If industrial action does occur at one or both mills, it could exacerbate any potential tightness.