US HRC: Prices slide, market assesses tariff news

US hot-rolled coil (HRC) prices continued to fall this week as spot orders remained weak and the market waits to see how the lifting of steel tariffs on Canada and Mexico will impact supply.

The Argus domestic US HRC index fell by $17.25/st to $617.75/st ex-works Midwest today on seven indications from sell and buy-side sources.

Lead times remained steady at 3-4 weeks as spot deals remained muted.

HRC orders of 1,000st or more traded for less than $600/st. One buyer said they were offered $560/st for HRC orders above 5,000st.

The Friday afternoon announcement by President Donald Trump that the 25pc tariff on steel imports from Canada and Mexico came suddenly. A quota system, which many expected to be imposed with the lifting of the tariffs, was not included.

The US also reduced steel tariffs on Turkish imports from 50pc to 25pc Friday.

While HRC prices are expected to continue to fall, some believe the reduction in tariffs on Turkey could lead to higher production in that country and boost demand for US scrap, potentially pushing prices higher. Since the announcement, offers for HMS 1/2 80:20 scrap into Turkey climbed back above $300/t cfr after trading in the $280s/t cfr as recently as last week.

Buyers and sellers are unsure how the tariff moves will impact the US market. But US Census figures show how steel trade from Mexico and Canada has changed since the 25pc steel tariffs were imposed.

Canadian steel exports to the US for the 10-month period between June 2018, the first month of tariffs, to March 2019 averaged 397,000 t/month (438,000 st/month), down from a 480,000 t/month average over the same months from the prior year.

One of the biggest drops in Canadian exports into the US was in HRC, which fell to an average of 68,860 t/month between June 2018 and March 2019 from an average of 76,800 t/month over the same months from the prior year.

Oil country goods exports fell to 4,685 t/month between June 2018 and March 2019 from an average of 17,250 t/month over the same months from the prior year.

Exports from Mexico, the third largest exporter into the US, averaged 274,000 t/month between June 2018 and March 2019, a slight increase from an average of 271,000 t/month from the same period the prior year. Much of the growth was because of an increase in exports of blooms, billets and slabs into the US to an average of 106,000 t/month between June 2018 and March 2019 from 72,000t/month over the same months from the prior year.

The growth in blooms, billets and slab exports was offset by a drop in oil country goods, which averaged 27,000 t/month between June 2018 and March 2019, down from 34,000t/month over the same months from the prior year. Mexican exports of heavy structural shapes and structural pipe and tube fell by more than 10,000 t/month to 8,100 t/month between June 2018 and March 2019 compared to the same months from the prior year.

Mexican steelmaker Ahmsa said today it plans to increase its steel production 30pc because of US tariffs being lifted. The company's chief executive Alonso Ancira Elizondo said around 25pc, or 100,000t, of the company's export production capacity had dropped off during the period when the tariffs were imposed.

US flat-rolled steel exports to Canada and Mexico may also have some room to grow now that Canada's reciprocal tariffs have been dropped. US exports to Canada of flat-rolled products more than halved to an average of 32,000 t/month between June 2018 and March 2019 from an average of 67,000 t/month over the same months from the prior year. US flat-rolled exports to Mexico fell by an average of more than 21,000 t/month to 61,000 t/month in the same time periods.

Other news Friday included a temporary reprieve for the US automobile market as Trump announced he would delay a decision on imposing tariffs on imported automobiles and parts from the EU, Japan and other countries until November. Some have warned imposing tariffs on imported automobiles and parts could cut demand by as many as 2mn vehicles/yr and trigger a recession.

The CME HRC futures market for June fell by $24/st from 14 May to $596/st yesterday. July prices fell by $31/st to $594/st, while August prices dropped $37/st to $593/st. Steel traders now expect forward prices to remain below $605/st for the rest of 2019.

Summary of market activity heard by Argus

• HRC, US: Tradeable value at $640/st ex-works Midwest, according to seller
• HRC, US: Tradeable value at $620/st ex-works Midwest, according to seller
• HRC, US: Tradeable value at $635/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $630/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $600/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $580/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $620/st ex-works Midwest, according to buyer