Bearishness grows in US HRC market

Prices in the US hot-rolled coil (HRC) market are coming under pressure this week from service centre destocking, shorter mill lead times and the threat of competitive imports.

Lead times from certain mills in the midwest region have slipped to four weeks on quieter demand, while service centres are looking to reduce their exposure to higher-priced stock amid lower mill quotes and squeezed margins.

"Distributors are uncertain about future pricing as mill order intake has slowed and lead times shortened," a service centre source on the US east coast said.

A couple of steelmakers are selling around $900/st ex-works and there is talk of lower levels, although no buyer confirmed achieving less. Around $880-890/st might be achievable, according to one trader, while another agrees buyers will be able to break $900/st.

Those buyers with procurement programmes in place are only taking the minimum tonnage because of the uncertain market. "I think we have some headwinds in terms of sentiment and people being scared to place tonnes at these levels," a trader said.

"You have a very high risk scenario because prices are so high, so everyone is leaving it to the last minute to purchase, but fundamentals are strong," another trader said.

Competitive import offers are being tabled into Houston, with a Mexican steelmaker reportedly quoting below $800/st delivered, which has spooked some buyers. Nobody admitted to committing to large imported tonnes, but statistics show buying has picked up — 216,810t is booked for July, up by 35pc on preliminary results for June, according to US census data. This figure is "confoundingly high", an integrated mill source said.

Softer scrap pricing for August and talk of a weak market into September is also fuelling bearishness. As a result, the Chicago Mercantile Exchange forward curve remains steeply backwardated — prompt prices at a premium to those further forward — with October trading at $821/st yesterday, and November at $802/st.

But one school of thought suggests the forward market might be oversold as increasing Chinese steel and iron ore pricing undermine the likelihood of huge import penetration — the Argus ICX 62pc seaborne iron ore fines price rose by 60¢/dry metric tonnes to $69.20/dmt yesterday. Chinese exports dropped by 15pc on month in July to 5.88mn t, compared with 6.94mn t in June, despite the recent devaluation of the yuan against the US dollar and strong production in May and June.

Slab prices are also rising, with one CIS steelmaker saying its cost was up by $20/t over the last two weeks alone. The Argus fob Black Sea steel price rose by $5/t Friday on 3 August to $525/t.

Uncertainty over price direction going forward in the US could crimp import demand, meaning some might question the attractiveness of current third-country offers. And there are impending maintenance stoppages at some mills — US Steel will have a 10-day outage at its Gary hot-strip mill in October, according to one buyer, while other integrated producers also have stoppages.

But the impact of such downtime should be offset by restarts at Granite City and Acero Junction. And the elevated price of US domestic steel relative to everywhere else in the world is concerning buyers.