Is 2016 the endless summer for US HRC steel prices?

The US steel industry is nearing the dog days of summer when many in the market will pack their bags and make the pilgrimage to the coast. They will be in search of sand, sun and frozen drinks, while leaving their day-to-day steel market concerns behind (or at least trying to). I am about to do just that and all the beach talk has led me to think about Bruce Brown’s 1966 surf documentary The Endless Summer, where he follows two surfers around the world in search of the perfect wave.

And somehow, hot-rolled coil prices still come to mind. Maybe it’s because they are riding a pretty nice wave themselves.

Since the start of 2016, US HRC prices have been on an ever-swelling surge, leaving some in the market waiting for them to crest and break around them, possibly dashing some riders from surf to turf – and not the kind at the resort buffet. Prices for HRC have increased 62% from an early January price of $388/st to $630/st currently, based on Platts assessment range mid-points, ex-works Midwest. Pricing momentum picked up sharply in April and May, increasing 37% over those two months. Recently US domestic HRC prices, the bellwether for steel pricing in general, have stabilized at around $630/st, slipping a bit recently but almost unchanged all of June and still the highest major market prices in the world.

Despite the length of the current pricing plateau, there are no obvious signs of an impending wipeout. Concerns over the collapse of US HRC prices seem to be founded mainly in the supply-driven nature of this year’s price hikes, as well as market psychology rooted in the massive price declines suffered last year following another supply-driven price wave, in 2014, that also rode the pipeline to a summertime crest.

You might recall that the US supply disruption in the first half of 2014 that caused that year’s price surge resulted mainly from a “polar vortex” that kept the Great Lakes waterways frozen well beyond historical norms, leading to significantly delayed iron ore deliveries to integrated steelmakers. Unplanned outages at two of those producers, US Steel and AK Steel, further constricted domestic sheet supply.

But this was a much more timid pricing swell compared to what we have seen this year. In 2014, US HRC prices rose from $635/st in early March to a high of $695/st in May before coasting at an average of $676/st during June-August.

Contributing to this year’s Big Wave, US Steel has idled both blast furnaces at its Granite City, Illinois sheet mill, which has listed annual steelmaking capability of 2.8 million st. In addition, the steelmaker’s Fairfield Works in Alabama, with 2.4 million st/year of capacity, was also taken offline. AK Steel has idled the 2 million st/year Amanda furnace at its Ashland, Kentucky mill and ArcelorMittal has adjusted production lines at its Indiana Harbor facility. These reductions, while mostly advertised as temporary, are now being seen as longer-term moves.

There are two other reasons there may be an Endless Summer for US sheet prices this year. The current wave of domestic HRC price strength will not be facing a tsunami of imports as seen in 2014. US mills have been on the offensive in this regard, filing unfair trade cases to protect against what they see as unfairly traded imports. In 2015, US producers filed trade cases against HRC imports out of Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the UK. The ongoing trade cases have found preliminary antidumping margins ranging from approximately 4-49% for the named countries. On an annualized basis, 2016 HRC are set to be 20.3% lower than in 2015, according to the American Iron and Steel Institute data.

The second reason US HRC prices could be more sustainable on this year’s surfing safari is demand from the energy market — it likely won’t be getting any worse. In 2014, the US market was consuming significantly more HRC to make pipe and other oil and gas related infrastructure with oil prices reaching more than $100 a barrel. The nosedive in HRC pricing in 2014-2015 came amid a supply swell of both HRC and pipe from offshore, arriving just in time to worsen the dive in domestic HRC prices related to the collapse of the energy market. Despite the lingering weakness in energy market demand, US HRC prices were still able to rebound this year and be maintained at levels not too far from 2014.

The supply-driven wave of 2014 was always destined to crest and break because domestic supply issues were temporary. Ice on the Great Lakes had to melt and domestic producers would fix their production problems. This year, domestic supply reductions are of a longer-term nature with numerous blast furnaces idlings leaving market surfers to hang ten under current market conditions for the foreseeable future.

To paraphrase the Beach Boys, US mills have caught the wave and are sitting on top of the world.

Source: http://blogs.platts.com/

Discount Heating Oil Prices is a company where one can find the lowest home heating oil prices. The company also provides delivery assistance to your home punctually and securely. Just visit the official website, enter your zip code, browse the lowest price available on heating oil in your place and click on the “buy now” button. Getting discount heating oil in Massachusetts is now just a click away from you

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s