Author Archives: James May

What will 2017 bring for the steel industry?

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

At the beginning of the year, it’s always fun to look forward and pick out some of the themes for the year. 2016 was certainly volatile as hot-rolled coil pricing went from $360 a ton to $600/ton, then back to the low $400s/ton before recovering to $600/ton. Phew! Read more

In this most-read post of 2016, we look back at the steel scrap market on May 3, 2016. Steel-Insight‘s James May argued that, while North American scrap prices were up, they couldn’t stay up long.

The steel scrap market (and raw steels overall) would not fully recover until Fall. — Jeff Yoders, editor

U.S. shredded scrap prices started 2015 at $350 per long ton delivered to Midwest steel mills.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Barring a very brief rally in June, the price fell every month over the year and dropped to $170/long ton in December. Indeed, if we look at the chart, U.S. ferrous scrap prices have been in a downtrend since late 2013.

U.S. Shredded Scrap Prices ($/long ton delivered US Midwest Mill)

steel_insight_scrap_300_050116

Source: Steel-Insight.

When prices fall every month, scrap yards and steel mills reduce their purchases to the bare minimum as they expect to be able to procure material at a lower price the very next month. Read more

As we continue to look back at our highest-rated posts of 2016, it’s no surprise that another price predictions article was among the most-read. Contributor James May of Steel-Insight gave us his price outlook for the second half of 2016 and, yes, 2017. Enjoy this best of metalminer post with an eye toward next year. — Jeff Yoders, editor.

U.S. flat-rolled steel prices appear to abhor a vacuum — they seem to either go up or down.

Two-Month Trial: Metal Buying Outlook

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James May

Moves this month, therefore, have to be perceived as efforts to hold pricing, even though they are pitched as price increases. For now, the moves appear to have worked; hot-rolled coil is steady at $620 a short ton out of minimills and $640/st from integrated mills with cold-rolled coil at $820-840/st.

Amid lower scrap prices, the minimills certainly have room to negotiate. Meanwhile, buying tends to slow over the summer. Import deals are also firming up given the spread. As such, it is our view that the bias is to the downside, but discounting — at least initially — will be limited. Hot-rolled coil lead times remain at around six weeks, although some minimills are closer to four to five weeks. Cold-rolled coil and hot-dipped galvanized remain in the eight to 10 week range — down from their peak, but not long enough to allow distributors much leeway in negotiation. Moreover, with some mills having downtime in August, there is no incentive to cut prices to fill schedules.

US Hot-Rolled Coil Prices ($/metric ton ex-works Midwest) Margins Widen

Steel_Insight_Coil_prices_550_071116

Source: Steel-Insight

Falling scrap prices and high steel prices are leading to rising spreads for minimills, a further reason to maximize output. Slab re-rollers are still seeing their spreads widening as well. At around $350/mt free-on-board Black Sea, the spread to U.S. domestic steel is around $300/mt over landed slab, an enormously profitable spread. It is, perhaps, no wonder that provisional semi imports in May were over 700,000 mt. We would expect them to move higher as buyers take advantage of the arbitrage. However, we caution that this could be another contributory reason for U.S. prices to drop later in the year as rising supply of coil hits the market. Read more

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James May

It is the time of the year when a lot of managers get asked to prepare next year’s budget.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

If you are a steel buyer then you probably need to come up with a number for your boss. It would also help if you were right, or at least had some strong arguments to back you up!

Don’t Panic!

We’re here to help. Early in the summer, U.S. hot-rolled coil prices topped out at $630 per ton. Currently, they are $500 a ton.

Our earlier reports highlighted the reasons why, but we recap them here:

  1. U.S. flat product mills are operating at high utilization rates. Don’t believe the American Iron and Steel Institute crude number.
  2. The high U.S. prices midyear opened up a major arbitrage. As the chart highlights, a big arbitrage results in rising imports, which have already turned higher. The anti-dumping action simply resulted in a diversion to alternate supply. This will arrive in Q4 and into Q1.
  3. The combination of higher domestic output and import arrivals led to excess supply and rising inventory.
  4. Under those circumstances, consumers do not need to buy and lead times have dropped to two to four weeks for HRC, incentivizing mills to discount. With scrap down to $220 per metric ton delivered, electric-arc furnace minimills, in particular, have the margin to offer those discounts.

Prices are therefore likely to drop to $450 per ton in Q4 and potentially even lower in Q1 2017.

U.S. Imports (000 metric tons) and HRC Price Arbitrage ($/metric ton)

JamesMay_100616

Source: Steel-Insight.

However, this rapid decline in prices means that the excess inventory build is likely to be small. Looking at the chart, we see that the “arbitrage window” was realistically only 3-6 months. In the last few weeks, HRC import buying has slowed dramatically, although cold-rolled coil and hot-dpped galvanized imports still make sense. Read more

U.S. Flat-rolled steel prices have dropped $20-40/ton so far in August, bringing hot-rolled coil down to $580-600/ton ex-works Midwest.

Two-Month Trial: Metal Buying Outlook

There are two schools of thought. First, the current dip reflects a typical holiday slowdown and prices will hold or come back in September. In that scenario, buyers need to secure Q4 requirements and will return to ordering in September. On the supply side, mills are taking downtime in October and Q4 for maintenance, there is still some idled capacity (U.S. Steel and AK Steel) while higher-than-expected final HRC duties and tariffs will keep out imports. The steel market will, therefore, tighten and prices will hold at the current high levels.

U.S. HRC, CRC, HDG Imports (000 tons)

Steel_insight_us_hrc_crc_HDG_imports_082316

Source: AISI, Steel-Insight.

Steel-Insight could not disagree more. While we don’t expect freefall just yet, we do expect HRC prices to be back in the high $300s/ton at some point next year. Read more

Iron ore has certainly been volatile so far this year. It jumped from the low $40s/ metric ton or 62% Fe fines on a delivered China basis to over $70/mt in April. It now stands at just below $50/mt.

Two-Month Trial: Metal Buying Outlook

In percentage terms, those are big moves in a short period of time, but frankly at Steel-Insight, we find this irrelevant. In context, the recent moves don’t hold a candle to the fundamental shift in the product’s shift from $200/mt in 2011 to the current level. Now that was a generational change.

Iron Ore Monthly Average Prices ($/Metric Ton cfr China 62% Fe fines)

steel_insight_ironore_053016_350

Source: Platts

In terms of the monthly average price, which is what many steelmakers’ costs outside of China are linked to, the moves have been relatively small from around the low $40s to the high $50s. For steelmakers, even that $20/mt change in iron ore costs actually only add $30/mt to their total cost structure (around 1.5 mt of iron ore is required to make a tonne of steel).

Meanwhile, North American steelmakers have seen steel prices rise from $360/short ton for HR coil at the beginning of the year to current levels of $620/short ton. The fact that ore costs may have gone up $30/mt in that period is pocket change.

Not a Long-Term Concern

Moreover, the rapid change in prices has clearly been a short-term event. It was driven by a modest improvement in steel market demand in China. However, this was compounded by the massive liquidity boost to the Chinese market that was seen in Q1 this year that the Chinese government injected in order to stave off an excessive slowdown. That allowed steelmakers, which had been forced to idle in late 2015 due to lack of credit, to secure iron ore and return to steelmaking. Their buying drove modest gains in iron ore pricing.

However, the market was turbo-charged by retail Chinese investors. Responding to the rising price and also public statements from Chinese political leadership, vast amounts of speculative finance surged into iron ore futures in China. In one day in April, the turnover in volume on the Dalian iron ore contract exceeded the combined turnover of all equities trading in China with pricing up 19%. Upon tightening access to trading, this liquidity ebbed as did the price. The most volatile pricing moves were not, therefore, an indication of fundamental demand.

Supply/Demand Picture

Fundamentally, iron ore is going to be boring for the next five-plus years. There is simply too much supply available to a steel industry where global demand is not growing. We expect iron ore prices to hit the $30s/mt for a period in the second half of this year and stay there for an extended period, with pricing moving in the $30-60/mt range for the next five years, i.e. exactly the trading range that they have been in the for the last year.

That will mean more pain for global iron ore miners. For steelmakers and steel buyers, however? A long period of low prices will be welcome….and boring.

Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.

 

Since bottoming in late 2015 at $350 per ton, U.S. hot-rolled coil prices are now a minimum of $450 a ton, with cold-rolled coil at least $600 a ton.

Free Download: The March 2016 MMI Report

Why? And will higher prices hold?

Supply, supply, supply. That is the reason for the current price strength. Steel can be sourced from two places: domestic mills and/or imports.

Shutdowns

Back in late 2015, prices moved to below the break-even point for the highest-cost U.S. steel mills. Their response was to close down those works, while others pulled back. U.S. Steel shut its Fairfield, Ala., blast furnace and its Granite City (near St. Louis) works. AK Steel shut its Ashland, Ky., facility. U.S. crude steel utilization rates plummeted to 60% and, even with a rebound and higher prices, they are not moving much above 70% in March.

US HRC, CRC, HDG Imports (thousands of tons)

James_may_CRC_HRC_HDG_imports_550_033116

Source: Steel-Insight.

The other factor is a sharp reduction in imports. Volumes in February were a third of the peak and 40% lower than a year ago.

While the provisional anti-dumping and counterveiling duties are less than the industry had hoped, a significant proportion of global supply is now excluded from the U.S. market and shipments are unlikely to return until the duties are finalized.

The Fundamentals

Demand has not changed fundamentally. It is supply that has contracted sharply since the final quarter of 2016.

Buyers are therefore struggling to source steel and mill lead times have extended outwards with even hot-rolled coil now out to six weeks or so. For cold-rolled coil and galvanized, the lead times are now closer to 10-12 weeks and some mills are not even offering the products to non-contract customers.

U.S. Crude Steel Capacity Utilization By Percentage

James_May_steel_capacity_550_033116

Source: American Institute of Steel Construction.

So, after three successful price hikes in three months, we expect another one shortly. We expect hot-rolled coil to go to more than $500 a ton by May.

There will be a supply response. We would expect utilization rates to creep up over the next few months and could go as high as 80% by mid-year, particularly if U.S. Steel restarts the Granite City works.

Free Sample Report: Our March Metal Buying Outlook

Yet, on the assumption that import duties are finalized, there is little scope for major gains in import volumes, although they will go up. As such, we would expect to see steel prices stay elevated through much of the second half of the year.

Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.

Recently released data shows that total U.S. scrap exports dropped 15% year-on-year in 2015 — to their lowest level in nine years. So what, and why should we care?

Free Download: The February 2016 MMI Report

There were two reasons, but the latter was dominant in our view:

  • The strength of the US dollar – Turkish buyers switched to EU sources for example
  • The displacement of scrap by Chinese billet.
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James May

Chinese steel billet made from iron ore and coal was exported at low prices. Prices so low that it made sense for many Asian, Turkish or Persian Gulf steel mills to stop using scrap (imported from the US) and roll billet instead.

Steel-Insight estimates that this trend cut the global trade in scrap sharply in 2015. Sims Metal Management — an Australian firm with a significant US export business — saw volume drop 24.1% in the second half of 2015 as it lost a lot of money.

It is closing 10 facilities, seven of which are in North America. An additional 25 locations may be closed or sold in 2016. Sims is hunkering down for an extended period of low prices and low volumes, and we think they are right to do so.

Global Scrap Market Trade (millions of metric tons)

Steel_insight_scrap_022916

Source: Steel-Insight.

Both factors continue to be in place through 2016, although the billet-scrap cost advantage has dropped somewhat. Nevertheless, we would expect scrap exports to be low (and imports high) in 2016.

This will keep the pressure on US domestic prices. The trade situation had an impact in February, when scrap prices struggled to move higher despite strong domestic purchasing as export cargoes were redirected toward domestic markets and export yards were limited buyers. Read more

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James May

US industrial output has been falling on a month-on-month basis since August and the manufacturing PMI fell below 50 in late 2015. Even with the bounce in January PMI data to 52.7, the manufacturing outlook remains uncertain after an extended period of weakness and continued currency strength.

Free Download: New! The January 2016 MMI Report

Yet, we suggest that US mills are (right now) in a sweet spot in terms of pricing. Are we crazy?

After a dismal 2015, steel mills are finally in a position to drive prices higher. It may not be for long, but any buyers that are short of flat steel in the short term will have to pay substantially higher prices in the next few months. We suggest that prices could rally $100-150 a ton between December 2015 and April/May 2016.

Supply Finally Constrained

Import and domestic supply is curtailed. US mills operated at 60-65% capacity in December.

With continued uncertainty regarding anti-dumping actions, finished steel imports are slowing. Importers cannot start selling again until final determinations are in, meaning that June arrivals are probably the earliest.

US HR, CR & HDG Imports (000 metric tons)

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Source: US Department of Enforcement & Compliance

Read more

In honor of throwback Tuesday #TBT, we here at MetalMiner are offering a look back at our top 50 posts of all time. This post from a year ago (December 1, 2014) successfully predicted the fall in prices that the US steel market suffered.

Free Download: Historical Metal Price Reports, Where Prices Have Been (And Where They’re Going).

In September (2014), we forecast that US steel prices (then at $680/ton) would fall modestly to $650/ton before holding with a rally into early 2015. We weren’t far wrong – they have dropped to $640/ton and held, while mills are trying to push prices higher early next year.

In early November, we forecast that ferrous scrap would fall to $300/ton in international markets, and they are now very close.

So 2 out of 2 ain’t bad.

US HRC, CRC, HDG Imports

JMsteelchart_November

Source: US Dept. of Compliance & Enforcement, Steel-Insight

Now here’s a forecast that may cause you steel mill sales reps to spill your expensive lattes. We think that US HR coil could fall to $550/ton or less in Q2 next year. Yep – that’s a 20% decline from prices that they may get in early Q1. (UPDATE: in June 2015 the, the spot price of the US HRC futures contract, as reported in the MetalMiner IndX, was  $464.00 per short ton).

Read more