Steel Producers Already Feeling the Heat From Lower Oil Prices

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Cold-rolled steel

After a robust year, highlighted by U.S. Steel Corp.’s first annual profit since 2008, the steel industry is facing an unexpected menace in tumbling oil prices, which have forced production cutbacks and even pressured prices for automotive steel.

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The Wall Street Journal reports that the heart of the problem is a build-up since last decade to supply oil and gas drillers. Like many others, steelmakers saw the US energy boom as their salvation. But with oil prices down more than 50% since last summer, energy companies have cut spending on projects requiring steel, and swiftly canceled orders with steel mills.

“There’s been an abrupt change in the near-term outlook in recent weeks,” John Ferriola, chief executive of Charlotte, N.C.-based Nucor Corp. , the country’s biggest steelmaker, said on a conference call Tuesday.

Although Nucor’s fourth-quarter profit rose 23% from a year earlier to $210 million, the company warned that “market conditions in the steel mills segment in the first quarter of 2015 will be impacted by challenges in energy markets due to customer inventory reductions.”

On Tuesday, January 27, the day’s biggest mover was Chinese slab, which saw a 1.2% decline to CNY 2,400 ($383.69) per metric ton. The price of Chinese HRC fell 0.8% to a 30-day low of CNY 2,610 ($417.26) per metric ton on Tuesday. The price of Chinese coking coal was unchanged at CNY 1,080 ($172.66) per metric ton. The price of iron ore 58% fines from India hit a high price of CNY 840.00 ($134.29) and a low price of CNY 840.00 ($134.29) per dry metric ton.

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The cash price of steel billet saw essentially no change on the LME for the fifth day in a row, remaining around $500.00 per metric ton. The steel billet 3-month price held steady on the LME at $480.00 per metric ton.

The 3-month price of the US HRC futures contract remained essentially flat at $572.00 per short ton. The spot price of the US HRC futures contract remained essentially flat at $583.00 per short ton.

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