Steel Prices Still Notching Up Higher Have We Hit the Top of the Price Curve?

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A couple of days ago we reported that heavy steel plate and galvanized sheet/coil may see global price increases due to supply constraints, namely rolling power outages for primary Japanese steel producers. Last week, Gerdau’s Steel Market Update suggested wire rod as well as hot rolled bar exports from Japan may also see some declines due to damage at an integrated mill and several mini-mills. But that may not limit supply or push up prices as China may pick up the missing volumes. Here in the domestic market, prices for HR band, CRC and all forms of scrap appear to still move in an upward direction — albeit at 1 percent increase levels, according to Steelbenchmarker. This suggests to us the upward price trend has started to slow. In fact, rebar declined by 2 percent. At these levels of increase, we tend to think the market has moved close or reached the top of the price curve. Other steel industry sources have indicated that pricing momentum has turned neutral.

On the other hand, plate prices increased by 4 percent, according to SteelBenchmarker. Since November, we have seen some buying organizations pay 32 percent more for plate today. With some galvanized steel and plate shortages expected from Japan, could we have a market in which a couple of steel product segments continue on an upward price trajectory while the balance of the market hits the top of the price curve?

Again, turning to Gerdau, their latest steel market indicator chart suggests some softening of the fundamentals, particularly around construction spending and some historical indicators such as general steel shipments and capacity utilization. But the Gerdau update report also suggests buyers still see rising prices. Does that mean we have a bifurcated market?

Oddly enough, China prices have not corresponded to domestic pricing (see this chart of key products from the last 30 days from China):

Source: MetalMiner IndX

As we said from the outset this year, we expect some ups and downs. In addition, we have also said, “very small demand upticks tend to create disproportionate price increases and in some cases, supply shortages. In addition, we know that the correlation between steel prices in China and steel prices in the US remains somewhat tight as raw material inputs (or steel-making inputs) tend to share the same general price trends (e.g. when iron ore costs increase, so too do scrap prices) meaning we can take pricing cues from places like China. Will China’s prices lead the US market or will it work the other way around? Stay tuned.

–Lisa Reisman

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