Current US steel prices have limited upside and will more likely resume the decline seen in 2019, going into Q2 2020 as steel price increases near their peak in Q1.
Hot Rolled Coil (HRC) metal spreads have extended further price increases when the market shifted from rising raw material costs to a restored balance between supply and demand.
Between October 2019 and January 2020, US scrap prices improved by about $80/gt ($79/mt) making them more level in comparison with seaborne raw material price levels. However, scrap export sales to Turkey and Taiwan, and domestic export yard prices are down by $10-20/gt this week, contributing to the decreases by $10-20/gt projected for February domestic scrap.
Scrap prices are projected to fall in February, due to continued moderate demand from steel mills. Market participants informed Davis Index that larger scrap volumes were sold into the domestic market for January, increasing mill inventories and lowering demand for February. Integrated steel mill ArcelorMittal, is also recovering from its recent outage at Indiana Harbor’s BOF that produces 4.1mn nt (3.72mt) of steel per year, likely lessening their scrap needs.
US HRC 2020 prices are projected to remain flat compared with 2019 increasing about $46/nt to $599/nt subsequent to the October 2019. US steel demand is also projected to remain flat or increase up to 0.3pc for 2020 due to moderate demand in most steel markets, except construction, which is projected to increase in the low single digits representing about 47pc of demand. Destocking has decreased but will continue among select manufacturers, while distributor inventories increased in December.
Despite flat demand, EAF’s are projected to increase share and volume compared to integrated mills given that the latter have shut down or idled facilities, and the mini mills have more contact with construction consumers.
In late 2019, ArcelorMittal announced it was idling No. 3 blast furnace, which produces about 1.6mn nt of hot metal per year, at Indiana Harbor. U.S. Steel (USS) announced its Great Lakes facility will close this year, which accounts for production capability of 3.8mn nt of hot metal per year. USS’s Granite City produces 2.8mn nt of hot metal per year, and is likely to shut down soon, which may stimulate business for other steel producers.
Finished steel imports to the US declined 18pc last year and accounted for only about 19pc of consumption compared to 23pc in 2018. The 25pc steel import tariffs are projected to remain in 2020 and US steel imports are likely to continue around 19-20pc.
As typical seasonality passes going into Q2 2020, domestic scrap flows and supply should improve, while increased steel production moving towards mini-mills will likely create balance to supply and be supportive of scrap prices.