The new target
for the steel industry: $900/ton for hot-rolled coil
Steel mills are in a good position as 2023 opens. Demand for
their products looks good, and service centers appear to be supportive of
recent price hikes. mbz-photodesign/iStock/Getty
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The wave of
domestic mill price increase announcements that began shortly after
Thanksgiving has continued well into the first quarter.
Mills were seeking at least $900/ton ($45/cwt) for hot-rolled
coil (HRC) when this article was filed in mid-February. If they achieved that,
it would mean prices were up nearly $300/ton from a 2022 low of $615/ton
recorded in November. The latest gains came after mills announced a combined
$100/ton in price increases in less than two weeks in early/mid-February alone.
In fact, we had trouble squeezing the raft of late increases in
late Q4 2022 and early Q1 2023 into Figure
1. As you can see, more service centers continue to raise
prices in tandem with mills. In other words, despite some macro concerns, such
as inflation, higher interest rates, recession fears, or the debt ceiling
debate, manufacturing companies are seeing a stronger-than-expected start to 2023.
For example, about half of respondents to our survey report that
they are meeting forecasts (see Figure
2). Another 30% are exceeding it, and only about 20% are
missing it.
You can see in Figure
3 that we’ve seen modest month-over-month improvement in overall
demand. If you go back to November, the results are even more pronounced. We’re
also seeing some of the strongest demand readings we’ve seen since the market
shock following the invasion of Ukraine last year.
One question I have: Is this strong demand from end users, or is
it mostly momentum-driven? Service centers, for example, could be pulling
forward demand as they buy to get ahead of the next anticipated round of mill
price increases.
Opinions are mixed. Some steel buyer sources tell us that solid
demand, combined with new capacity struggling to ramp up, has created a supply
squeeze in certain regions. Others say they’re not able to pass along higher
steel costs at the rate that mills have been raising prices, and that demand is
starting to falter.
Despite such mixed outlooks, we’ve seen a steady increase in
where people think prices will be in two months (see Figure 4).
Expectations of higher prices coincide with the rapid-fire mill
price increases we’ve seen. Most people don’t think prices will get above
$900/ton. But that probably has more to do with the lag time between when price
hikes are announced and when the impact of those hikes is reflected in our
surveys.
That said, there are some flies in the ointment. A significant
minority of survey respondents think prices won’t peak until late spring or
early summer. But most continue to predict that prices will peak before Q1 is
over (see Figure 5).
Figure 1. In recent weeks, more service centers are reporting an
intention to increase steel prices.
That’s something
to watch. Why such divergent outlooks? Why might one camp say that prices will
peak soon while another says that won’t happen until this summer?
Want another reason for caution? Yes, lead times have clearly
improved since November, when HRC lead times dipped below four weeks. And, yes,
five weeks on average is a healthy lead time. But it’s not typically one
associated with prices rising nearly $300/ton in fewer than three months.
Lead times might kick out again in response to the latest round
of mill price increases. But if they don’t extend along with prices, that could
be cause for concern given that the two typically trend together.
Also, we’ve seen a bit of an unusual shift in how companies are
managing inventories (see Figure
6). Most steel consumers are maintaining inventories. Some
service centers continue to build them. But a growing minority of end users are
looking to reduce inventories. Why might that be? Will we see, as we saw
following the Russia’s invasion of Ukraine last year, a rapid increase in
prices followed by a steep decline once markets recalibrate?
It’s worth noting here that some analysts think the lag between
when interest rate hikes are announced and when they are felt means that
construction, a key end market for steel, could slow down significantly in the
second half of the year. They also believe that infrastructure spending won’t
be enough to offset that trend.
That said, I think it’s also safe to say that we’re still trying
to figure out what the new normal
for steel prices is following the shocks of the pandemic, the war in Ukraine,
and the increased regionalism we’re seeing today when it comes to both the
steel trade and supply chains, more broadly speaking.
Consider that $615/ton low we saw in November 2022. It used to
be that prices above $600/ton were good news for steel mills. Prior to the
pandemic—think late 2015, for example—we saw HRC prices fall below $400/ton,
lower than even the darkest days of the initial Covid-19 outbreak.
What if $600/ton is the new $400/ton? If that is the new floor
for the market, then what’s the new ceiling? Are we near it already? Do we
still have room to rise? I’d be curious to hear what you think.
Steel Market Update Events
Consider registering for our next Steel 101 Workshop. We’ll be
holding the event live in Cleveland on April 11-12. It’s a great overview of
the steelmaking process for both newbies and industry veterans.
Steel 101 is unique in that what you learn in class is
immediately reinforced by a mill tour. This time we’ll tour Cleveland-Cliffs’
Cleveland Works. It’s the first time we’ve toured an integrated mill in a
while, and we’re looking forward to it! You can learn more about Steel 101 at events.crugroup.com/steel101/about-steel-101.
Figure 2. Manufacturing companies indicate that their economic
fortunes are improving as they entered February.
Also, don’t forget
to register for Steel Summit, our flagship event and the largest flat-rolled
steel conference in North America. You can learn more and register by visiting events.crugroup.com/smusteelsummit.
The event, scheduled for Aug. 21-23 at the Georgia International
Convention Center in Atlanta, is just a free tram ride away from
Hartsfield-Jackson Airport. We had nearly 1,300 people attend the event last
year.
Keynote speakers this year will include Cleveland-Cliffs
Chairman/President/CEO Lourenco Goncalves; ITR Economics President Alan
Beaulieu; and Gene Marks, president of The Marks Group PC. We’ll be announcing
additional speakers in the weeks ahead.