Viewpoint: US steel supply to remain short in 1Q

The US steel market is expected to remain undersupplied through the first quarter of 2021, with a lack of imports and steel production continuing to weigh on the market.

Despite multiple restarts of idled capacity that was taken down due to the Covid-19 pandemic, steel producers are not expected to be able to match demand through at least the first quarter, according to many market participants.

Steel buyers have been unable to find the tons they need for their customers for months, with steel inventories said to be at some of their lowest levels ever.

The lack of steel has only been exacerbated by a recovery in demand, with the Metals Service Center Institute (MSCI) reporting that steel shipments in November were only down by 1.3pc compared to the same month of 2019. In May shipments fell by 34.2 pc year-over-year, the largest percent decline since the coronavirus pandemic shut down large parts of the North American economy beginning in mid-March.

Inventories dwindled between the end of March and August, when steel demand plummeted as the North American economies adjusted to the reality of the coronavirus pandemic. Approximately 19mn short tons (st)/yr of pig iron and steel production was idled, the majority of it by integrated steelmakers ArcelorMittal USA, Cleveland-Cliffs, and US Steel.

US mill production for the year through 19 December measured 76.95mn st, around 16.9mn st or 18pc lower than the same period in 2019, according to estimates from the American Iron and Steel Institute (AISI). Average capacity utilization so far for 2020 is 67.4pc, compared to 79.8pc for the same period of 2019.

In mid-August the Argus US hot-rolled coil (HRC) assessment bottomed out at $450/st and a buying spree began, quickly increasing HRC lead times from 3-4 weeks for the week ending 11 August to 7-8 weeks for the week ending 1 September.

Prices have more than doubled since the mid-August low to $977/st on 22 December with lead times of 8-9 weeks. Both prices and lead times are driven by supply side issues related to the coronavirus idlings of pig iron and steel production and low inventories within steel service centers.

US Steel has restarted three of its four idled blast furnaces, most recently announcing on 1 December that it would restart its No 4 blast furnace at its Gary Works mill in Indiana in a week. In Arkansas electric arc furnace (EAF) minimill steelmaker Big River Steel has fired up its 1.65mn st/yr flat-rolled expansion.These and other capacity restarts are not expected to help alleviate supply strains in the market through the first quarter, exacerbated by a lack of steel imports.

Global steel prices have remained at historically high price levels,with HRC fob Turkey prices at $657.71/st as of 18 December and HRC fob Tianjin at $621.42/st as of 22 December. These products would be subject to at least the 25pc Section 232 steel tariff, adding another $155.36-$164.43/st to those prices before factoring in other costs such as freight.

Imports have fallen by 22pc year-over-year through November to 18.6mn metric tons (t) (20.5mn st), according to preliminary data from the US Department of Commerce.

Imports traditionally have played the role of providing a low-cost influx of HRC products into the US, smoothing out sharp price increases and generally signaling the end of a price rally. Few if any in the market believe imports will flow into the US in a significant way this time, and high prices appear to be prepared to stick around for some time.

By Rye Druzin