How Far Can Steel Price Spreads, US Steel Prices Rise in 2017?

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The price you pay for your steel pretty much depends on two things:

  1. Prices in China, since they set the floor for international steel prices.
  2. How much of a premium U.S. mills are able to justify over that price.

 

Graphic: Raul de Frutos/MetalMiner.

Prices in China are moved by supply and demand dynamics. We’ve explained in previous posts that overall, things are setting up for Chinese prices to continue to trend higher. While demand has been better than expected, China met its 2016 capacity cuts goal and further cuts are expected to take place this year as the country tackles its pollution issues.

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However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.

Spread between HRC US and HRC China. Source: MetalMiner IndX.

Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (HRC) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago.

This means that just by justifying higher premiums, HRC prices could go from $600 to over $750. Spreads already started to rise last month. Will steel companies have the pricing power to raise their selling prices as they did last summer? There are reasons to believe they at least have a little room for a price increase:

Imports

When U.S. buyers have access to foreign steel, U.S. steelmakers lose pricing power. Trade cases last year gave U.S. steel mills the ability to increase their spot prices significantly. The soon-to-be President, Donald Trump, favors a more aggressive trade policy, regularly citing job losses as a result of imports from foreign countries, especially China.

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Markets expect Trump’s tough trade policies to contain steel imports. If imports stay under control, steel companies will have more pricing power, leading to a further expansion of spreads between U.S. and international prices.

Low Inventories

Source: MSCI, Steel-Insight

In 2015, steel end-use buyers and service centers destocked their inventory. This destocking activity by service centers then continued into 2016. Inventory levels have come down. In addition, the proposed U.S. boost in infrastructure spending should cause domestic demand to increase. This combination of low inventory levels and expectation of higher real demand will likely make service centers buy more steel, giving U.S. mills more purchasing power to increase spot prices.

Comments (3)

  1. Kent Engelmeier says:

    Consulting to a US based company considering entering the hot rolled coil and cold plate market. Prices in China and US tariff policy are important considerations in this decision

    1. Jeff Yoders says:

      Visit our current metal prices page for the latest steel prices, Kent.

      Jeff Yoders, editor

  2. k richardson says:

    Steel prices as well as other products need to decrease. Stupid people (who are only interested on there on pocketbooks) need to be stopped. The economy would be much better if small businesses and consumers could afford to buy products

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