US HRC: Some mills selling cheap on skinny lead times

The US hot-rolled coil market appears to be stabilising this week, with mills' March production offers firmer at around $700/st after several announced $40/st hikes.

Nucor, US Steel, ArcelorMittal and NLMK have all followed the $40/t rises initially announced by west coast sellers.

There is clear justification for the increases in the global market.

Iron ore prices have risen strongly since Brazilian firm Vale's dam disaster in the country on 25 January. Argus' benchmark ICX index was at $88.35/dry metric tonnes yesterday, up from $75.60/dmt on 25 January. Vale being ordered to shut its largest mine in Minas Gerais state, Brucutu, is yet to be priced into indices because of the lunar new year holiday.

There is also building concern that flooding in Queensland could move south towards the Bowen Basin, a coking coal production hub.

Strengthening Turkish scrap prices — the latest deal for Baltic HMS 1/2 (80:20) was at $321.50/t cfr — and cold weather in the US have also provided some price support in the February buy-week, with initial prices slipping less than anticipated.

Given the above, an integrated seller said US HRC prices rising was a "done deal".

While mills may point to such factors as drivers of the increases, the relationship between the US and global markets is perhaps more tenuous than it once was because of Section 232 tariffs.

And at least three mills, two in the south, are still on wafer thin lead times. As a result, they continued to sell at low levels last week to fill their order books, although they appear to be more resolute in some instances this week.

Well-stocked buyers are also in no rush to purchase, with some reporting holding as much as three months' stock. Until these inventories have been drawn down, they will not be desperate to pay more.

Argus' weekly domestic US HRC index slipped to $675.50/st ex-works Midwest today on one reported deal and indications from seven buy and sell-side sources. The import assessment slipped by $7.50/st to $647.50/st ddp Houston.

A re-roller in the south has amassed a whopping slab stock after the slowdown over the fourth quarter of last year — and partly owing to Section 232 tariffs — and was also turning material round quickly at competitive levels.

A service centre source said he was seeing more contract inquiries from customers for the second quarter, "which would lead us to believe that buyers feel the mills will have success at least in the near-term with pricing, but are not overly confident in the long-term".

Most sources concurred this week would be a big one for mills, as February rollings get closed out and mills focus on March, where most have been firmer in their offers. March was trading at $716/st on the Chicago Mercantile Exchange as of 16:30 London time, while the current month was at $685/st, representing a pretty steep contango.

Summary of market activity heard by Argus

• HRC, US: A service centre bought 200t from an Ohio-based mini-mill at $670/st ex-works, after the $40/st increase announcements
• HRC, US: Integrated seller estimates tradable value at $730/st ex-works Midwest
• HRC, US: Service centre was offered 1,100t at $700/st ex-works by an Ohio-based mini-mill
• HRC, US: Service centre was offered at $670/st ex-works
• HRC, US: Service centre bid at $640/st ex-works was declined
• HRC, US: Trader estimates tradable value at $670/st ex-works Midwest
• HRC, US: Service centre estimates tradable value at $670/st ex-works Midwest
• HRC, US: Trader estimates tradable value at $680/st ex-works Midwest
• HRC, US: Re-roller estimates tradable value at $700/st ex-works Midwest
• HRC, US: Re-roller offering $700-720/st ex-works Midwest
• HRC, US import: Korean material offered at $655/st ddp Houston, according to trader
• HRC, US import: Korean material offered at $640/st ddp Houston, according to buyer
• HRC, US import: Mexican material offered at $680/st ddp Houston, according to trader