Raw Steels MMI: Steel Prices Decline Amid Record HRC / Plate Spread

The Raw Steels Monthly Metals Index (MMI) fell by 8.73% from July to August. All in all, U.S. steel prices continued their descent, leaving cold rolled coil and hot dipped galvanized prices at their lowest point since January 2021. Meanwhile, hot rolled coil prices fell well beneath the $1,000/st mark, reaching their lowest point since December 2020. However, plate prices managed to disrupt two consecutive months of decline, by rising in July.

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Correlation Declines: Record Spread Between HRC and Plate Steel Prices

Source: Chart & Correlation Analysis Tool, Insights

The spread between hot rolled coil and plate prices continues to expand. In fact, plate prices are now double that of HRC, a historic record for the two steels. Prior to October 2020, plate prices sat an average of roughly $150/st above HRC prices. Then, due to the relatively steep rise of HRC prices, the delta inverted through November 2021. Now, as plate prices continue to hold near record levels and HRC prices remain if free-fall, the delta has expanded to $931/st.

Over the last few years, diverging price trends caused a major decline in the correlation between the two steels. After all, since 2012, HRC and plate prices enjoyed an 86.61% correlation. In fact, by the end of 2020, that correlation had grown to 87.17%. Since 2020, however, the price correlation has plummeted to 55.93%.

Nucor Drops Plate Prices $120/St, Attempts to Raise HRC Prices $50/St

The growing spread triggered frustration from buyers. It even caused Nucor to lower plate prices by $120/st in late July. Then, following a month-over-month increase in July, prices began to decline again in August. They now sit at their lowest point since November of 2021. That said, they appear to have largely consolidated since last fall amid variable month-to-month price movements. It’s worth noting that the current high prices do not come alongside historically elevated mill lead times. Traditionally, this is a leading indicator of availability and demand.

Nucos also stated that additional plate capacity should come online in late 2022, which could add further downward pressure to prices. Once operating at full capacity, Nucor Brandenburg will add an additional 1 million short tons per year of steel plate.

Steel Prices: Steel Sheets Nosedive

Meanwhile, on August 8, Nucor announced a $50/st increase in sheet steel prices. Many experts feel the move was an effort to pause the uninterrupted price descent for HRC, CRC, and HDG. The three had been in a downtrend since late April, and it’s possible Nucor was hoping to shore up the bottom end of the spread between HRC and plate steel prices.

HRC

That said, even the efforts of North America’s largest steelmaker seem incapable of stopping the current declines. Indeed, HRC prices continue to deteriorate at the time of this writing. It’s also unlikely that Nucor found any buyers at their elevated rate. Rather than accepting the increase, it’s likely buyers simply leaned on inventories amid the growing weakness of the global economy.

Hot rolled coil prices now sit almost 57% beneath their all-time high and nearly 44% beneath their late-April peak. Prior to the historic ascent that began in August 2020, the average HRC price since 2012 has sat at roughly $615/st. This could indicate that prices have further to fall, as they are technically still at the top end of their historical trading range.

Ignore the noise. Spot the trend. Related article: The Art of Timing Your Buy

Higher Input Costs Eat Away at Steelmaker Margins

On top of the descending price trends and deteriorating demand outlook, North American flat rolled steel producers now face the pressure of increased input costs. In a recent conference call, Stelco CEO Alan Kestenbaum referred to the combination of factors as a “double whammy” for production margins.

“On top of deteriorating pricing and demand, our business is being challenged with strong headwinds, including inflationary pressures on some of our key inputs such as natural gas, coal and alloys,” Kestenbaum noted during the call. He also stated that large-scale demand destruction was not a leading driver of the current price downtrend. Indeed, service centers seem wary of buying ahead. Simultaneously, inventories have narrowed amid the prospect of a global economic downturn. Kestenbaum stated that he considered Nucor’s recent price increase a “good sign” for steel producers. Still, he acknowledged that the price trend has yet to bottom out.

Consumer Spending Increase

Meanwhile, consumer spending continues to show growth. While data for July awaits release, previous months reveal a rather steady increase. However, as the Wall Street Journal noted in its recent article, “Consumers Are Still Spending on Fun,” spending has shifted away from goods and towards experiences, an inversion from pandemic-year trends.

However, food and electricity spending remains elevated. So as summer turns to fall, this could lead to more widespread demand destruction. Beyond that, the National Association of Home Builders/Wells Fargo Housing Market Index fell for the eighth consecutive month in August. In fact, the index dropped by 6 points to 49, signaling a contraction.

As a leading driver of steel demand, this recent decline could indicate the beginning of a more meaningful downturn – one that steelmakers like Stelco simply have yet to see.

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Biggest Shift in Raw Material and Steel Prices

  • U.S. three-month HRC futures rose by 1.47% to $895 per short ton as of August 1.
  • Meanwhile, standard Korean steel prices dropped by 28.65% month over month to $221 per metric ton.
  • Chinese slab prices fell by 10.94% to $644 per metric ton.
  • Chinese coking coal prices dropped by 10.44% to $418 per metric ton.
  • Chinese HRC prices fell by 9.78% to $596 per metric ton.

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