Steel prices are at or near their peak and are expected to moderate in the coming weeks and months.It remains to be seen whether it will gradually ease, giving the market a chance to adjust, or whether it will plunge like a rock and bring a painful blow to the market.
The Steel Market Update (SMU), which examined the market on September 13-14, showed that hot-rolled steel prices fell for the first time in more than a year.It fell only $5 to an average of $1,950 a tonne ($97.50/cwt), but it came at a critical moment: prices for cold-rolled and coated products were also flat or down.Clearly, the market is changing.
Steel users believe that a drop in steel prices is imminent.A mid-September SMU survey of manufacturers and service center executives found that 80 percent believed that hot-rolled steel prices have peaked or will peak by the end of the year or will peak within $50 of the current average.
Looking at the historic rise in steel prices, since bottoming out to just $440/t ($22/cwt) in August 2020, hot-rolled steel prices have barely budged as the economy struggles to recover from COVID-related shutdowns Rising weekly.The surge in the economy, spurred by trillions in government stimulus and vaccinations to get people back to work, has quadrupled steel prices over the past year to unprecedented levels.The previous high for summer 2008 HRC was $1,070/t before SMU’s September report of $1,995/t.
Some will argue that measures taken by domestic mills to limit supply and keep prices high has exposed them to the emerging competition from imports they now face.Steel imports could rise 20% or more this year.
In a normal market, most buyers will tell you they prefer domestic suppliers to foreign factories because the supply chain is shorter and the risk of logistical issues is lower.There is also patriotism and an incentive to buy products made by U.S. steel buyers, however, that perception seems to have been overcome.Nearly two-thirds of respondents to the SMU survey said the potential savings of hundreds of dollars per ton were worth the risks inherent in ordering foreign steel.
SMU closely monitors the lead times for spot orders from steel mills.Long lead times usually indicate that the factory is very busy processing orders.Busy factories with full orders can charge more for their products.In a normal market, it usually takes four to five weeks for delivery.At times this year, hot-rolled lead times have been closer to 11 weeks, which helps explain record steel prices.However, delivery times began to shrink last month, with hot-rolling times falling below nine weeks for the first time since April.If this trend continues, it is a leading indicator of a potential price decline.
Analysts at CRU, the parent company of SMU, believe that a correction in steel prices is long overdue, a sharp correction is likely, and a correction may occur soon.A flood of imports starting to flow into the U.S. at $500/ton cheaper than the domestic label has helped ease the supply crunch that has driven prices higher.While steel demand remains very strong, it is growing at a slower pace.Service centers began reporting inventories balanced with outbound shipments, signaling weaker demand in the distribution sector.Planned maintenance shutdowns at various mills in the fourth quarter will keep steel supplies tight in the short term.However, CRU predicts that a seasonal slowdown in demand and irresistible bargains provided by imports will help to quickly bring plate prices closer to global prices.
The historic price has resulted in historic profits for steel producers and distributors.Industry sentiment as measured by SMU has never been more optimistic.SMU asked in a poll last month: How do you see your company’s ability to succeed in the next three to six months?Nearly 80% see their prospects as good, if not great.SMU’s Future Buyer Sentiment Index, measured by a three-month moving average (see Figure 1), is at its highest level since February 2018 and is up sharply from a year earlier.What does it mean?Most buyers don’t seem to care about the big, sharp price correction that could be on the horizon.
Post time: Mar-08-2022