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Fastmarkets 3July 2019

4 Five key takeaways on the state of steel

7 Four lessons on ferrous hedging

10 Cleveland-Cliffs ready to export iron ore

11 Stelco shopping for acquisitions

12 China said unlikely ferrous scrap exporter

13 Mergers not out of question, GFG exec says

15 JSW forging ahead in US even if tags fall

17 HRC to rebound after $500/t floor - WSD

19 China halting WTO suit ‘very big news’ - AISI

20 How will steel survive 2018’s successes?

Table of contents

Fastmarkets 4July 2019

1. HRC price predictions vary among analysts

Bank analysts offered a more pessimistic view on the outlook for hot-rolled coil prices for the next few years due to a combination of new capacity slated to come online and a possible decline in demand.

Bank of America Merrill Lynch analyst Timna Tanners predicted that the impending glut - likely 17-19 million tons of new/restarting capacity in all - could drive HRC below $450 per short ton in 2022.

Credit Suisse analyst Curt Woodworth had a slightly higher forecast of $530 per ton for 2022, with potential new/restarting sheet capacity of 14.2 million tons by 2023. World Steel Dynamics (WSD) analyst Peter Marcus painted a rosier picture for the future of HRC prices. Marcus expected HRC prices to decline further to $500 per ton in the coming months but then rebound to $720 per ton in early 2020 when a “steel boom” occurs.

Fastmarkets AMM’s US domestic Midwest HRC index was calculated at $26.50 per hundredweight ($530 per ton) fob mill on Wednesday June 19, the last day

Fastmarkets AMM reporters have

summarized five key takeaways from

last week’s 34th annual Steel Success

Strategies conference in New York, hosted

in conjunction with World Steel Dynamics.

Five key takeaways on the state of steel

Fastmarkets 5July 2019

of the conference, down by 2.4% from $27.14 per cwt on Monday when the conference began.

2. Reasons for optimism

In a keynote speech on June 19, Nucor chief executive officer John Ferriola said that this year is a better year for the steel business in the United States than it might seem during the current period of declining prices and frozen demand.

Ferriola noted that 20 of the 24 market segments tracked by Nucor are “stable or growing.”

Only power transmission, automotive original equipment manufacturers, automotive supply and non-energy pipe and tube are receding this year, he said.

“2019 will continue to be a good year for making steel and selling steel,” Ferriola said.

In the North America region, Ferriola said that steel demand will grow to 145.6 million tonnes in 2020 from 144.5 million tonnes in 2019.

3. Ferrous hedging

“There is a lot of talk about steel futures at this conference,” one delegate said when submitting a question to a panel during the conference. “Do your banks offer them? Can hedging help small companies?”

Two panels – one featuring exchanges and another market participants that hedge their physical exposure – plus a three-hour hedging workshop, attempted to answer a deluge of questions from audience members on this growing trend in the ferrous industry.

Out of the 110 questions submitted via the Sli.do website during the three-day conference, 23 of them were inquiries related to ferrous derivatives, according to data collected by Fastmarkets.

Audience members learned about the basics of hedging, in addition to four key lessons on risk management. While there has been some resistance to using steel derivatives as a method to manage risk, the idea has been gaining traction due to increasing price volatility and a push to efficiently reduce costs.

4. Trade/protectionism

Wolfgang Eder, chairman of Austria-based steelmaker Voestalpine, told attendees during his keynote presentation on June 19 that the European Union remains a staunch advocate for, and practitioner of, free trade while denouncing protectionist measures.

“The European Union was always in favor of open markets, and clearly the driving force for protectionist measures comes from a region north of Europe,” Eder said in reference to the United Kingdom, echoing recent comments in which he partially cited the country’s ongoing Brexit negotiations for Voestalpine’s lower earnings during its 2018-19 financial year.

“I am not in favor of any duties, and in fact I personally hate them... I am absolutely convinced only free markets will be a solid ground for our future development,” he said.

“I am not in favor of... Section 232 or any other anti-dumping measures,” Eder added. “We need open markets.”

The European Union imposed safeguard measures on steel imports in January 2019.

5. Big infrastructure package unlikely in near future

President Donald Trump and leading Democratic lawmakers agreed to a $2-trillion plan to overhaul US infrastructure in late April. But big infrastructure packages like this one are unlikely to happen in the near future, Thomas Gibson, president and chief executive officer of the American Iron and Steel Institute, told Fastmarkets AMM on the sidelines of the conference.

Tanners also predicted at the conference that there will be no funding for any possible $1 trillion, $1.5 trillion or $2 trillion of infrastructure spending.

Funding ideas, such as gas taxes and public private partnership, have been entertained though. Something may be done eventually, such as highway trust fund reauthorization, Gibson noted.

Dom Yanchunas, Yvonne Li, Patrick Fitzgerald and Grace Lavigne Asenov, all in New York, contributed to this report.

Fastmarkets 6July 2019

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Fastmarkets 7July 2019

Four lessons on ferrous hedging

Ferrous hedging was a common topic at the Steel Success

Strategies XXXIV conference in New York this past week,

with record-low market prices and the need to increase

efficiencies continuing to mandate a new way of thinking.

Fastmarkets 8July 2019

Here are four key takeaways on risk management from the event:

What it costs

Hartree Partners trader Karl Schmidt told delegates during a panel discussion that it costs him less than $1 per ton to trade CME Group’s futures contracts.

“That’s a nominal cost for the privilege of being able to manage that risk,” he said. “It’s incremental.”

For example, Schmidt said he pays about $3 per lot if he’s using CME Direct, a front-end trading platform that allows participants to trade via CME Globex or submit over-the-counter (OTC) trades to CME ClearPort via the exchange’s clearing house, CME Clearing. He pays $4 per lot if he’s using OTC Clearing, the exchange’s platform that allows clients to clear OTC trades.

One lot equals 20 gross tons for CME’s busheling scrap futures contract and 20 short tons for its hot-rolled coil contract, thus equating to 15-20 cents per ton, depending on the trading method.

Non-cleared members using CME ClearPort are charged $5 per lot, or 25 cents per ton, Spencer Johnson, risk management consultant at brokerage INTL FCStone, noted during a hedging workshop at the conference.

On top of the exchange fees is the cost of using a broker, which is based on “whatever arrangement you come to with the broker, normally in the range of 50 cents [per ton],” Schmidt said.

Indeed, using a futures commission merchant (FCM) – a type of brokerage that can trade on behalf of its clients, collect margins and clear trades – typically costs about 50 cents per ton, Johnson confirmed.

“If you used us for brokerage, execution and clearing, it’s 75 cents [per ton in total],” he added, noting that “25 cents goes to CME and 50 cents for the FCM.”

If customers renege

Panelists were asked what might happen if a seller offers a customer a forward fixed price and hedges that exposure but then the customer refuses to take the tons at the agreed upon price.

“We’ll sell the tons to another party, or if there’s a loss we’ll sue that customer for the loss,” Jeremy Flack, founder and chief executive officer of service center Flack Global Metals, told the audience. “We’re not going to play the old steel business game – there’s no discipline with that. If a customer does that to us, we don’t want them as a customer anyway.”

But Flack noted that they have helped customers get out of unfavorable positions in the past.

“The nice thing about using futures... is you can wait to buy the physical [product] until you’re closer to the delivery date,” he added.

Speculating isn’t bad, and isn’t the same as hedging

“You need to have some speculation in the market in order to generate liquidity... Speculators don’t cause prices to rise... the market cannot fight where the fundamentals are,” Schmidt said.

“Ultimately, the driving ethos is for us to de-risk the business,” Big River Steel head of risk management Bradley Clark said during a panel. “We don’t do anything with the paper that adds risk to the business; all we do is take risk off our business. That allows us to give our customers solutions in what they need in terms of pricing, or allows us to take advantage of forward-moving raw material purchases.”

Although some critics of ferrous derivatives say that hedging brings speculation into the steel supply chain, hedging and speculating are not the same.

Be prepared

“People call me with a high sense of urgency because they see an opportunity to hedge but they aren’t set up to do so,” Sean Kessler, manager of metals products at CME Group, said during the hedging workshop. “Find a clearing firm and a broker... Put the plan in place. You can get set up for just six months, so when the moment arises, you’re ready.”

Interested parties should select a front-end trading application and have a trading plan in place too, he advised.

“Use the exchange as a resource,” Kessler said. “We are constantly putting out educational materials.”

PIONEERSAT HEART

Fastmarkets 10July 2019

It has yet to experience any effects of steel production cuts, however, because they did not involve any of its clients, he said during the Steel Success Strategies conference in New York, which is co-sponsored by Fastmarkets.

“I was expecting [furnace] shutdowns, and I was prepared to start exporting pellets,” Gonçalves said. “But my clients did not shut down any [electric-arc furnaces],” he added.

U.S. Steel has announced plans to idle two blast furnaces in the US, citing “current market conditions”, which will reduce capacity by 200,000-225,000 short tons per month, beginning in July.

The steelmaker does not buy material from Cleveland-Cliffs.

The daily Fastmarkets index of domestic hot-rolled sheet prices in the US was at a year-to-date low of $530 per ton fob on Wednesday, down $57.20 per ton from $587.20 per ton fob on June 3.

Ohio-based Cleveland-Cliffs has been making investments to raise production, but it is prepared to offer direct-reduction-grade (DR-grade) pellets to the international market to keep volumes going, in case the shutdowns in the US affect any of its clients, Gonçalves said.

“Our DR-grade pellet is highly sought-after,” he said.

The iron ore producer is investing in a 1.6-million-tonnes-per-year hot-briquetted iron (HBI) facility in Toledo, Ohio, which is expected to start up in mid-2020.

Gonçalves said the Toledo project had infrastructure that allowed it to “easily double” its production capacity, if market conditions improve. The new unit will mostly supply EAFs.

Cleveland-Cliffs will also soon increase production of DR-grade pellets since it is close to completing an expansion of its Northshore DR mine, which would enable it to produce 3 million tpy of pellets.

It expects iron ore supply to remain short for at least the next two years in the wake of a mining disaster at Vale’s Brazilian operations, which led the miner to halt production at several sites.

The daily Fastmarkets MB 62% Fe Iron Ore Index was at $114.08 per tonne cfr Qingdao on Wednesday, its highest in just over five years.

The index was at $72.07 per tonne cfr on January 2.

“[Iron ore] prices will remain high this year and next year,” Gonçalves said.

Cleveland-Cliffs ready to export iron ore if more US steelmakers cut production

United States-based iron ore producer

Cleveland-Cliffs is prepared to export

part of its iron ore output in the event

that more furnaces are shut down in the

country, its chairman and chief executive

officer Lourenço Gonçalves said on

Wednesday June 19.

Fastmarkets 11July 2019

The Hamilton, Ontario-based company is a “platform for growth” that is pursuing a strategy of “tactical flexibility” and intends to grow both organically and through acquisitions, executive chairman Alan Kestenbaum said on Tuesday June 18 at the Steel Success Strategies conference in New York.

Kestenbaum, speaking during a panel discussion on the North American steel industry outlook, said his company intends to use the current market downturn to be opportunistic in expanding through acquisition. He didn’t specify the types of enterprises that Stelco wants to add.

In a separate conversation later in the panel, however, he mentioned that downstream Canadian metal processors should perform well if the United

States-Mexico-Canada Agreement goes into effect. The new trilateral trade pact would increase the required amount of domestic content from the North American partners.

Stelco has been expanding its flat-steel production, including investment in advanced high-strength steels used by automotive metals processors.

Kestenbaum on Tuesday mentioned that Section 232 measures forced Stelco to nurture deeper supply relationships with downstream consumers of advanced high-strength steels in its home country.

Fastmarkets AMM’s daily Midwest hot-rolled coil index settled on Tuesday at $26.88 per hundredweight, its lowest point since November 2016.

Stelco shopping for acquisitions

Stelco Holdings is openly seeking acquisitions, according

to one of the Canadian steelmaker’s top executives.

Fastmarkets 12July 2019

“I believe China is going to consume all the [ferrous] scrap internally. It’s not going to export,” chief executive Ugur Dalbeler said on Tuesday June 18, speaking at the Steel Success Strategies conference in New York.

Market participants have shared concerns that China’s massive internal reservoir of scrap materials could flow to other countries, including the United States, putting pressure on prices for key grades such as No1 busheling and shredded automotive scrap.

But there are two factors that might deter China from exporting a significant amount of material to other countries, Dalbeler said: distance and market share.

Globally, the main importers of ferrous scrap are located in the Mediterranean region, which is “too far away” for the Asian nation to conduct any meaningful export businesses, he explained.

And “in the Far East, there are other exporters, such as Japan,” Dalbeler said.

It makes more sense for China to consume ferrous scrap in its domestic market, especially given that country’s growing interest in electric-arc furnaces (EAFs) to address environmental issues such as emissions from blast furnaces at steel mills, he continued.

Global EAF usage by steelmakers increased by 12% in 2018, largely due to China’s ongoing drive to decrease the quantity of ferrous scrap charged into blast furnaces to reduce pollution, Fastmarkets previously reported.

Last year, China increased its consumption of ferrous scrap to 187.8 million tonnes, up by 27% from 147.9 million tonnes in 2017.

“[Consuming scrap domestically] is going to make them more flexible because they build arc furnaces next to the blast furnaces,” Dalbeler said.

New policy on scrap imports

China has been a big importer of non-ferrous and ferrous scrap from the United States in recent years, although its June 2018 announcement of a potential complete ban on imports of solid waste by the end of 2020, including all metal scrap, roiled the scrap market at the time.

Now, Chinese imports of US products including metals concentrate and non-ferrous and ferrous scrap are eligible for two rounds of applications for exclusion from Chinese tariffs, according to a new policy document seen by Fastmarkets.

China said unlikely ferrous scrap exporter

China is unlikely to become a major supplier in the ferrous scrap

export market over the short to mid-term, due largely to robust

demand in that country’s domestic market, according to a top

executive at Turkey-based Çolakoglu Metalurji.

Fastmarkets 13July 2019

“We have no mergers planned at the moment, but I never say never... We are open to every type of evolution,” GFG executive chairman and chief executive officer Sanjeev Gupta said.

“I believe in change and evolution as a necessity,” he added.

London-based GFG’s openness should not come as a surprise to steel market participants in the United States, where its Liberty Steel USA subsidiary has been drawing attention in recent years in its efforts to become a top producer in the domestic wire rod market.

Liberty acquired Johnstown Wire Technologies earlier this month and completed its purchase of Keystone Consolidated Industries in early January. The company also bought the Georgetown, South Carolina, wire rod mill from ArcelorMittal in December 2017 and restarted operations there in June 2018.

Gupta highlighted the competitive advantages of the US steelmaking industry.

“The US has many, many advantages for steelmaking... It is the largest exporter for steel scrap, it is a large importer of steel, it has cheap energy prices, it has good infrastructure - both physically and financially - and every other respect in terms of a place to do business,” he said.

“These attributes make it a very good place to invest in industry,” Gupta added.

In terms of whether tariffs are the best solution to propel the evolution of the steel industry, Gupta criticized their focus on upstream products while neglecting to protect against downstream, finished goods.

“There’s no point in having tariffs on upstream products and not on downstream products,” he said. “If you’re going to have tariffs, have them across the board, have them for a finite period and have them committed for that finite period.”

US wire rod market participants have previously attributed downward pressure on domestic wire rod prices to strong competition for imported finished goods that are not subject to the Section 232 measures or anti-dumping duties.

Fastmarkets’ assessment for industrial quality low-carbon wire rod was at $34-35 per hundredweight ($680-700 per short ton) fob mill on Tuesday, down from $36-37 per cwt on May 21. Imported wire rod was assessed at $645-680 per ton cfr Port of Houston, unchanged in the same comparison.

Mergers not out of question, GFG exec says

GFG Alliance, the parent of Liberty Steel

USA, is open to possible mergers, a top

company executive told attendees during

a keynote presentation at the Steel

Success Strategies XXXIV conference in

New York on Tuesday June 18.

Fastmarkets 14July 2019

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Fastmarkets 15July 2019

“We are steelmakers. We have very strong nerves. We can endure the ups and downs - otherwise we wouldn’t be here today,” JSW Steel chairman and managing director Sajjan Jindal said on Tuesday June 18 in response to a question from Fastmarkets AMM following a keynote presentation at the Steel Success Strategies XXXIV conference in New York.

JSW Steel has committed to spend $1 billion at its operations in the United States, Jindal said. “We are quite bullish about being present in the US.” And JSW will remain committed to the US market, whatever the short-term cycles of the domestic steel market might be. “We would like to be present in Europe as well,” he added, noting that approximately 90% of JSW’s capacity is in India at present.

In the US, the Ohio sheet mill - located in Mingo Junction, approximately 40 miles west of Pittsburgh - is going through “teething issues,” Jindal acknowledged, but added that those issues were largely confined to its EAF.

The facility’s hot-strip mill, in contrast, is running “very well,” he noted.

Jindal chalked the problems up to the mill being idled for a decade. The Mingo Junction EAF was commissioned in 2004 but had been idle since January 2009. JSW restarted the furnace in December.

Despite the issues, JSW plans to ramp up the EAF to its rated capacity regardless of prevailing US steel prices, he said. “Price is something we cannot influence... as such, we would like to optimize the capacity.”

One thing JSW would like to see - especially with mills investing more to make lightweight steels for end users such as the automotive sector - is pricing based less on tonnage than on the value that products like advanced high-strength steel (AHSS) deliver to customers. AHSS reduces the amount of steel necessary in vehicles, and so pricing it based on tons is a losing game, Jindal said.

JSW acquired the Ohio sheet mill for $80.85 million in March 2018, and at that time announced plans to modernize the facility’s EAF. The capacity of the mill’s EAF is 1.5 million tonnes per year, while that of the slab caster is 2.8 million tpy and its hot-strip mill 3 million tpy.

The year the deal was announced - 2018 - was a good one for steel but 2019 has not been good for the industry thus far.

Fastmarkets AMM’s daily Midwest hot-rolled coil index was calculated at $27.14 per hundredweight ($542.80 per ton) on Monday. This put the average thus far this month at $28.05 per cwt, down by 9.7% from a May monthly average of $31.06 per cwt and off by 38.5% from a 2018 peak monthly average of $45.61 per cwt last July.

JSW forging ahead in US even if tags fall

JSW Steel plans to ramp up the electric-

arc furnace (EAF) at its sheet mill in Ohio

to full capacity and invest in and expand

its operations in Texas despite currently

tough market conditions, the company’s

top executive said.

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SSS 2019 PDF Ads.pdf 1 7/9/2019 4:02:11 PM

Fastmarkets 17July 2019

HRC to rebound after $500/t floor - WSD

Prices for hot-rolled coil in the United States will drop as low as

$500 per short ton ($25 per hundredweight) in the coming months

before climbing to $720 per ton ($36 per cwt) in early 2020,

according to top executives from World Steel Dynamics (WSD).

Fastmarkets 18July 2019

“We think [the HRC price] can drop to $500 [per ton] in the months ahead, and then we’ll rally to about $720 when we have the steel boom early next year,” WSD managing partner Peter Marcus said during a keynote speech on Tuesday June 18, speaking at the Steel Success Strategies conference in New York, co-sponsored by Fastmarkets.

“I am feeling extraordinarily bullish and confident that we’re going to have a strong global economy in the next four years,” he added, citing a potential trade agreement between China and the US. If such a deal is reached by early next year, that could unleash the “pent-up euphoria and demand” that has accumulated psychologically both in the steel industry and the global economy, according to WSD.

Fastmarkets AMM’s daily Midwest hot-rolled coil index was calculated at $27.14 per cwt ($542.80 per short ton) on Monday June 17, down by 3.8% from $28.22 per cwt a week earlier and down by 40.8% from a nearly 10-year peak of $45.84 per cwt reached in July 2018.

Marcus also pointed to surging raw material costs as supporting the HRC market.

While US domestic ferrous scrap prices have trended lower over the past three months, seaborne iron ore prices soared to $112.28 per tonne - a more than five-year high - on June 18, amid bullish trading in derivatives and physical markets.

Finding the floor

Although the prices for US domestic HRC have been falling fast in recent months, analysts from WSD said it is unlikely that prices would hit the $400-per-ton threshold.

“There’s a myriad of factors why prices shouldn’t go anywhere near $400 [per ton] in the US,” WSD chief executive officer Philipp Englin said at the keynote speech, in response to a question asked by Fastmarkets AMM. “Typically, that’s below production costs level… that’s a death spiral price. You have to have a flood of imports and a major collapse that’s underlying demand and absolutely zero production discipline to get to that condition.”

But Englin did not say what it would cost a blast furnace to idle - one tactic that market sources have broadly agreed would help to stop the price slide.

Fastmarkets AMM has estimated that US flat-rolled capacity could increase by up to 16.5 million tons per year through 2022, due to several sheet expansions that have been undertaken or announced by domestic mills.

Market sources have previously expressed doubts that the US domestic market - which consumes approximately 130 million tpy of steel, half of which is flat-rolled products - could absorb the additional supply.

Steel production in China also is expected to increase further this year, but that output is a non-factor to the global steel market, Englin said, indicating that volume will be largely focused on Chinese domestic demand.

Fastmarkets’ fob China hot-rolled coil index stood at $484.75 per tonne on June 18, down by 1.7% from $493.38 per tonne one week earlier.

The WSD executives also forecast that ex-China steel demand would increase by late 2019 and early 2020, leading to a rebound in global steel pricing.

Trade woes, wins

Englin argued that worsening trade relations between the US and China could drive Chinese demand for steel higher.

“Every time the Chinese economy suffers an impact from the trade war, the Chinese government stimulates,” he explained, indicating that the government stimuli tend to be fixed-asset-investment intensive, including steel-intensive programs.

And Marcus predicted that US prices for hot-rolled imports would climb to roughly $650 per ton early next year.

Fastmarkets AMM assessed the price for hot-rolled coil imports at Houston docks at $560-600 per short ton cfr on June 12, down by 3.3% from $580-620 per ton previously. As of June 17, the import price at its midpoint is nearly $40 per ton above the domestic HRC index.

Fastmarkets 19July 2019

“That’s a very big piece of news in the continuing struggle to confront the state-owned, state-supported, state-sponsored steel world [in China],” AISI president and chief executive officer Thomas Gibson said on Monday June 17 on the sidelines of the Steel Success Strategies conference in New York.

China’s decision also is “good news for everyone who’s relied on non-market [economy] analysis and bringing trade cases against China,” Gibson added. If China had prevailed in its case, that could hurt US trade investigations against China that rely on non-market methodology, he continued.

China had previously argued that, under the terms of its accession to the WTO, it should be treated as a market economy 15 years after its entry - in December 2016 - and requested dispute consultations with the United States and European Union over certain anti-dumping calculation methodologies that

it claimed unfairly prejudiced Chinese exports.Market-economy status assumes that a nation’s costs and prices are dictated by the market and not by a state entity.

Hard-knock effect

A 2015 report sponsored by six steel industry groups found that treating China as a market economy could shrink steel output in North America and negatively affect anti-dumping investigations.

China’s decision to halt the suit means that the WTO panel overseeing the case will suspend its work at the request of the complaining party for a period not exceeding 12 months, according to Gibson. If the complaining party doesn’t request that the panel resume its work within that period, the panel will disband.

The US steel industry receives certain tax incentives and other support from state governments that compete for economic projects, Gibson acknowledged. The Chinese government, however, uses tools to underpin its domestic steel industry - including state provisions and financing, energy discounts and conversions of debt - which function as a country-wide support program, he said.

“There is no comparison between that and some [US] state incentives,” according to Gibson.

Michael Cowden in New York contributed to this report.

China halting WTO suit ‘very big news’ - AISI

China’s decision to halt a suit at the World

Trade Organization over its claim to be a

market economy is “very big news” for

the global steel market, a top executive

at the American Iron and Steel Institute

(AISI) told Fastmarkets AMM.

Fastmarkets 20July 2019

How will steel survive 2018’s successes?

Officially, 2019 is a Steel Success Strategies year, but it

feels uncomfortably close to a Steel Survival Strategies

year for many steel market participants.

Fastmarkets 21July 2019

The last time the second “S” stood for “Survival” at SSS XXXII was in 2017. And there was no doubt that SSS XXXIII was a “Success” year. Yet many of the trends that contributed to last year’s bull market in the United States have unwound ahead of SSS XXXIV, which gets underway on Monday June 17 in New York. The conference is co-produced by Fastmarkets AMM and World Steel Dynamics.

Let’s take a step back and see where things stand now versus where they stood a year ago.

HRC drops like a rock

Fastmarkets AMM’s daily US Midwest hot-rolled coil index averaged $31.06 per hundredweight ($621.20 per ton) in May, down 8.4% from $33.91 per cwt in April and 31.1% from $45.10 per cwt in June of last year. June 2018 marked the highest monthly average since $45.13 per cwt in October 2008. Lehman Brothers went bust in September that year, triggering a global panic that sent HRC prices careening below $30 per cwt before the year was out.

The 2018-19 price drop to date hasn’t been as steep as that in 2008-09. But it could be another decade before HRC prices climb above $45 per cwt again, some market participants have said. HRC prices are on pace to fall well below $30 per cwt this June. And the Nasdaq Futures Exchange’s HRC contract - which is based on Fastmarkets AMM’s prices - indicates that prices might not claw back to $30 per cwt until June 2020.

What happened?

Back to the scrappy basics

Scrap prices have fallen approximately $80-90 per gross ton over the last 90 days.

No. 1 heavy melt was at $231.79 per gross ton in June, down 11.3% from $261.44 per ton in May and 26.2% from $314.10 per ton in March. Shredded scrap settled at $259.05 per gross ton in June, down 10.8% from $290.32 ton in May and 23.9% from $340.21 per ton in March.

And No. 1 busheling was at $281.73 per gross ton in June, down 9.8% from $312.25 per ton in May and 24.3% from $372.32 per ton in March.

The takeaway? Domestic mills - especially flat-rolled mills - might want to roll out a price increase to combat persistently lower prices. But it’s hard to do that, especially for mini-mills, with scrap prices falling so fast.

Section 232, what more can you do?

Even if mills announce price increases, many market participants will question their effectiveness. Prices have fallen throughout 2019 despite mills announcing price hikes totaling $4 per cwt on flat-rolled steel.

It’s the opposite of 2018, when prices rose steadily in the first half of the year following the implementation of Section 232 measures. And prices rose last year largely in the absence of mill price increase announcements.

HRC prices averaged $34.37 per cwt in January 2018. They rose to an average of $41.67 per cwt in March of that year following the announcement of Section 232 tariffs and quotas. And they made a final jump to an average of $45.61 per cwt, their highest point in a decade, last July on the trade action being extended to the US’ traditional allies and trading partners - Canada, Mexico and the European Union.

Cutting production is not the USA way

Will mills in the United States - especially integrated mills saddled with higher costs - respond to low prices by cutting production as some companies have already done in Europe? Or will US mills continue to operate above 80% capacity utilization - one of the goals of Section 232 - despite uneven demand?

While planned outages have been taken, no furnaces have been idled.

In the meantime, the steel market is investing billions of dollars to add millions of tons of capacity to the domestic market.

Perhaps those tons will be welcomed into a stronger market in the early 2020s. In the meantime, it remains unclear when prices might recover and what the catalysts for that recovery might be.

Steel companies that hope to succeed this year will have to find solutions - and soon.

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A new era for the hot-rolled coil market

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SSS 2019 PDF Ads.pdf 2 7/9/2019 4:02:11 PM