US flat steel market braces for increases

The US flat-rolled steel market has grown increasingly bullish in the past week that prices will rise, as the conflict between Russia and Ukraine cuts supplies of semi-finished steel and raw materials.

Some market sources expect hot rolled coil (HRC) prices could rise to $1,300-1,400/short ton in the coming months on the back of higher cost, which would be up more than $300/st from current spot prices and reverse a downward trend.

A service center was told by a mill that it should buy as soon as possible as prices will be going up soon.

Wolfe Research said in a note that integrated steelmaker Cleveland-Cliffs is considering another sheet price increase after a $50/st flat-rolled increase was announced on 21 February. Electric arc furnace (EAF) steelmaker Nucor followed with their own $50/st price increase on 25 February.

This would represent a notable divergence from the recent softening in the US HRC market. The Argus US HRC Midwest ex-works assessment has fallen by 36pc since the beginning of the year to $1,022.50/st on 1 March. The price is down by 48pc since hitting a peak of $1,970/st in September.

Global flat-rolled steel prices have already reacted sharply upward to the disruption caused by Russia's invasion. Northwest Europe HRC prices have climbed $80/st since 24 February to $1,035/st.

The conflict between Russia and Ukraine is of particular concern to the US steel market as more than 60pc of its basic pig iron supply comes from the two countries and is used to feed US EAF steelmaking. More than 70pc of US production is EAF-based.

The Argus BPI cfr New Orleans price jumped by $112.50/metric tonne to $700/t on 3 March from the prior week, with prices ranging from $650-750/t.

Prices for #1 busheling, a prime scrap grade that EAF steelmakers can use to offset higher prices or lower availability of pig iron, is expected to trade up by at least $100/gross ton in the March trade, which has not begun.

At the same time, demand for scrap from major seaborne buyer Turkey has climbed as mills in the country look to fill gaps in supply from Russia and Ukraine. Argus assessed the HMS 1/2 (80:20) cfr Turkey price at $626/t today, compared to $509.50/t on 24 February, the date Russia began its invasion of Ukraine. The rise in the price has supported sentiment around US obsolete scrap prices for the March trade as well.

The US imported 1.21mn t of semi-finished steel from Russia in 2021, 23pc of total volumes, according to US Commerce Department data. With the implementation of sanctions on Russia, US importers will likely be forced to find alternative sources and to compete with buyers in a number of countries, for whom financial restrictions make buying from the country more difficult. Russia exported just under 15mn t of semi-finished steel in 2021, including to Mexico, Taiwan and Turkey, according to Russian Federal Customs Service data.

These raw material price pressures on the US market will squeeze steel mill margins, giving them a reason to push further price increases.

By Rye Druzin