US HRC: Steel prices fall amid oversupply, uncertainty

US hot-rolled coil (HRC) prices continued to slide over the past week amid oversupply, uncertainty in the markets and continuing destocking.

The Argus domestic US HRC index fell by $29.50/st to $535.50/st ex-works Midwest today on nine indications from sell and buy-side sources.

Lead times slipped to 2-3 weeks as service centers continue to moderate their purchases in the expectation that prices will continue to fall. There is talk of large-tonnage deals being done around $500/st and below, although these have not been confirmed yet. One buyer said he has had $520/st "in his pocket" but is holding out for cheaper levels. Service centers that bought material at high prices and subsequently seen replacement costs tumble have been selling sheet at low levels, biting into their margins. Integrated mills are loss-making at current prices, but mini-mills are still in the black despite their margins being squeezed. Expectations for a softer domestic scrap market in July could help electric arc furnace-based mill margins, but could also be reflected in softer selling prices.

US steelmakers Nucor and Steel Dynamics both said continued service center destocking would negatively impact their second-quarter earnings in guidance publications released on 17 June. Australian steelmaker BlueScope Steel, which is in the process of expanding its 2.1mn t/yr (2.3mn st/yr) flat-rolled mill in Delta, Ohio, cut its second quarter earnings on 18 June because of weaker-than-expected margins from its North American operations. Distributors' flat-rolled shipments declined by 4.6pc in May.

But more market participants believe the destocking period that has characterized most of this year is now drawing to a close. Inventories are low and real demand is more resilient than the drop in apparent buying would suggest. There is some concern that any further slippage in oil prices below $50/bl could impact oil country demand, but the Architectural Billings Index suggests construction activity could pick up.

With maintenance coming up at several mills and buyers fishing for prices on large bookings, there is an expectation that lead times could move out quickly and create a comparative rush for material, pushing prices up. One mill said last week was its best in volume terms for five months, after a three-week dry spell in which buyers were sitting on their hands.

Conversations are still revolving around the need for more production to come off line. Raw steel production data has fallen in four out of the past five weeks, according to data from the American Iron and Steel Institute (AISI), with last week the first in a month that production staged a slight uptick.

Prices for HRC imports into Houston fell by $40/st to $550/st ddp as they continue to struggle to compete with low-priced domestic production and the continued pricing uncertainty in the market. Similar to the situation in Europe, domestic mills are fighting among themselves for bookings, although uncertainty over the likelihood for quotas on Canada and Mexico is not helping sentiment.

Cold-rolled coil (CRC) and hot-dipped galvanized (HDG) prices fell to $690/st as buyers also search for a bottom in that market.

The CME HRC futures market for July fell by $8/st from 11 June to $545/st yesterday. August prices rose by $8/st to $550/st, while September prices fell by $6/st to $555/st. Steel traders now expect forward prices to remain below $582/st for the rest of 2019.

Summary of market activity heard by Argus

• HRC, US: Tradeable value at $540/st ex-works Midwest, according to seller
• HRC, US: Tradeable value at $540/st ex-works Midwest, according to seller
• HRC, US: Tradeable value at $535/st ex-works Midwest, according to seller
• HRC, US: Tradeable value at $530/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $500/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $555/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $530/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $550/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $540/st ex-works Midwest, according to buyer
• HRC, US: Tradeable value at $600/st ex-works Midwest, according to seller