US steel market caught by tightness, price rise

The US flat steel market has been caught by surprise by tighter-than-expected steel supply and rapidly rising steel prices.

The overall steel production rate was at 74pc for the week ending 18 February, down by 6.8 percentage points compared to a year ago while overall steel production of 1.65mn st was down by 5.8pc, according to data from the American Iron and Steel Institute.

Multiple steel service centers have complained about an inability to book light gauge hot rolled coil (HRC) on a spot basis from the mills, with steelmakers not quoting buyers and unwilling to run 14 gauge and lighter material through their rolling lines.

The current market trend is contrary to where many expected heading into 2023.

Buyers assumed in the last months of 2022 that US steelmakers would oversupply the flat steel market, with multiple capacity additions expected to be running better. Service centers largely cut their contract tons by double digits as they prepared to rely more on the spot market.

Additional capacity at two mills run by Nucor and Steel Dynamics (SDI) in Kentucky and Texas, respectively, have not yet performed as expected, the companies recently acknowledged in their fourth quarter earnings calls.

The low performance of those mills was coupled with some of the lowest mill utilization rates in years has cut into spot availability in parts of the market.

Imports also declined recently, with HRC imports down by 19pc in 2022 compared to 2021, according to US Department of Commerce data. In the last six months of 2022, HRC imports were down by 38pc compared to the prior year, indicating a further slowdown in import volumes, while total steel imports in December were down to their lowest levels since February 2021.

This week market participants noted some shock that electric arc furnace (EAF) steelmaker Nucor raised prices by $100/short ton (st) on Tuesday, setting its minimum HRC price at $1,000/st, a move quickly followed by integrated steelmaker Cleveland-Cliffs. Since the end of November steelmakers have increased their spot prices by $360/st.

The market's disbelief in the move — quickly followed by the majority of regional steelmakers — has led to a deeper concern over the lack of available spot supply.

There is a growing sense of bullishness in the market that this run could last longer than previously expected given the tightness in supply and expectations that scrap prices — which are on a three month tear — could continue to rise in March, buoyed by strong demand from Turkey as it recovers from its dual earthquake disaster.

By Rye Druzin