US steel prices driven up by multiple factors

A year ago conflict in Europe and raw material supply shortages rocketed US flat steel prices up, while today a smattering of smaller issues and missed forecasts have again put upward pressure on pricing.

Coming into 2023, most US service centers expected flat steel spot supply to be abundant and prices in a relatively tight $600-800/short ton (st) ex-works range. They reduced their contract volume commitments from the mills by 10-30pc in response.

Instead since mid-October steel mills have kept utilization rates at or below 75pc, and the Argus US Midwest and southern hot rolled coil (HRC) ex-works assessment has risen by 83pc since mid-October to $1,150/st on 14 March, blowing by previous market expectations as steelmakers drive prices ever higher.

Demand has remained steadier for longer than the market had expected, with talk of a recession pushing further out into the year and lessening in severity. In the US, interest rate hikes by the US Federal Reserve has yet to sap strength from the still hot economy, even though they have recently caused some headaches in the banking industry.

Prior to 2023 and into the early parts of the year, US service centers had reduced their inventories to levels they normally would not operate at, fearing being caught with high-priced inventory if demand fell off.

Now many are scrambling to find additional steel as supply has remained tight amid the reduced steel mill utilization rates. The lower service center inventories mean buyers have less to buy from their competitors, and many report operating with a lack of certain types of steel products in their inventories.

Steel mills with new production such as Steel Dynamics' (SDI) Sinton, Texas mill or Nucor's expanded Gallatin mill in Kentucky continue to operate below expected levels, and the two companies expect better performance in the second quarter.

Multiple short-term steel mill outages are also hitting the US market from March through May, with the bulk over the next 4-6 weeks. Over 330,000st of raw steel production are estimated to be lost from the market from outages.

In tandem with this, imports of steel have fallen, removing a potent source of supply that typically fills in gaps when domestic supply is short and when prices climb.

In 2022 imports came in at lower rates, with HRC imports down by 19pc to 2.25mn metric tonnes (t), while hot dipped galvanized (HDG) coil imports fell by 4.7pc to 2.54mn t.

February license data from the US Department of Commerce showed a potential ninth consecutive month of steel import declines, with HDG volumes potentially down 37pc year over year and HRC imports down by 35pc.

The cutting of production at Mexican steelmaker Altos Hornos de México (AHMSA) brought on by financial woes has cut off much lower cost supply from Ternium, also reducing the number of options US buyers have. Southern US mills have also been selling into Mexico to fill the gap.

The multitude of issues has raised questions to how long the current rally can last. Much will hinge on how steel mills operate coming out of their outages, and if steelmakers keep their production rates lower than they had been in 2022. Flat steel imports are reported to be coming between June and August, though how much will make it to US shores is yet to be seen.

By Rye Druzin