How Far Can Steel Price Spreads, U.S. Steel Prices Rise In 2017?
MetalMiner | Jan 17, 2017 12:55AM ET
The price you pay for your steel pretty much depends on two things:
- Prices in China, since they set the floor for international steel prices.
- How much of a premium U.S. mills are able to justify over that price.
Graphic: Raul de Frutos/MetalMiner.
Prices in China are moved by supply and demand dynamics. We’ve explained in as the country tackles its pollution issues .
However, in this post we’ll focus on the premium that U.S. customers pay. This price spread between U.S. and international prices is also very important and could make your purchases more expensive in the coming months.
Spread HRC US – HRC China. Source: MetalMiner IndX.
Spreads have fallen sharply over the past few months. The spread between U.S. and Chinese hot-rolled coil (US Midwest Domestic Hot-Rolled Coil Steel ) prices is now $97/ton. To put this in context, consider that this spread was $276/ton just seven months ago.
This means that just by justifying higher premiums, HRC prices could go from $600 to over $750. Spreads already started to rise last month. Will steel companies have the pricing power to raise their selling prices as they did last summer? There are reasons to believe they at least have a little room for a price increase:
h3 Imports/h3When U.S. buyers have access to foreign steel, U.S. steelmakers lose pricing power. Trade cases last year gave U.S. steel mills the ability to increase their spot prices significantly. The soon-to-be President, Donald Trump, favors a more aggressive trade policy, regularly citing job losses as a result of imports from foreign countries, especially China.
Markets expect Trump’s tough trade policies to contain steel imports. If imports stay under control, steel companies will have more pricing power, leading to a further expansion of spreads between U.S. and international prices.
h3 Low Inventories/h3
Get The News You Want
Source: MSCI, Steel-Insight
In 2015, steel end buyers and service centers went about destocking their inventory. The service center inventory destocking activity continued into 2016 as well. Inventory levels have come down. In addition, the proposed U.S. boost in infrastructure spending should cause domestic demand to increase. This combination of low inventory levels and expectation of higher real demand will likely make service centers buy more steel, giving U.S. mills more purchasing power to increase spot prices.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.