Steel Insight: US Steel Prices Will Drop in 2015
MetalMiner | Dec 01, 2014 02:37AM ET
Steel-Insight has written 3 columns for MetalMiner so far this year and committed to 2 forecasts.
In September, we forecast that US steel prices (then at $680/ton) would fall modestly to $650/ton before holding with a rally into early 2015. We weren’t far wrong – they have dropped to $640/ton and held, while mills are trying to push prices higher early next year.
In early November, we forecast that ferrous scrap would fall to $300/ton in international markets, and they are now very close.
So 2 out of 2 ain’t bad.
Now here’s a forecast that may cause you steel mill sales reps to spill your expensive lattes. We think that US HR coil could fall to $550/ton or less in Q2 next year. Yep – that’s a 20% decline from prices that they may get in early Q1.
Hold on. Isn’t the US economy growing at 3.5%+ and consumer confidence the highest since 2007? It’s true, but the steel industry may not reap the rewards.
Our analysis suggests that apparent flat steel consumption in the US may grow by 11-12% in 2014. Automotive has had a good year, but output is only up 6-7%. Construction hasn’t been bad either – up 4-5% in terms of expenditure.
Overall, industrial production is running 4-5% higher, so yes there have been gains in appliances, packaging and other sectors.
But 11%+ – no way. We think that underlying consumption growth has been around 6%, which means that the rest has gone into the supply chain.Steel in
h2 Steel in 2015/h2So how about next year?
With auto sales now up to 16.5 million units, incremental demand gains in output will be much lower. Even if sales hit 17 million units in 2015, production may be up only 3%. That assumes that all the gains go to US-made vehicles – not a given assuming continued dollar strength. Meanwhile, steel mills have lost 600,000 units previously devoted to Ford’s F-150 that have gone to aluminum, while the accelerating shift to high-strength steel will also impact overall tonnage sales.
Construction may improve on the back of private sector investment, but we are hard-pressed to be more optimistic than 5%, while another year of 5% industrial production would be above most people’s expectations, that still adds up to underlying growth of around 4% for steel demand.
On the supply side, imports are still coming in. While Russia won’t be able to supply the 1 million tons that it did in 2014, Turkish, Latin American and Asian suppliers will be happy to send their steel to the US. Coil imports are now running at close to 1 million tpm compared to an average of 550,000 tpm in Q4 2013 and 700,000 tpm during the first half of 2014. Chinese mills can make north of $200/ton more selling their cold-rolled coil to the USA than they can domestically. They are loading boats as you read this.
Get The News You Want
Meanwhile, unless we get another polar vortex early next year, we expect U.S. Steel and ArcelorMittal will be looking to sell more in 2015 than they did in 2014.
Therefore, inventories will continue to rise on higher domestic and import supply that is outstripping underlying demand. Mills will continue to tell their clients that the economy is booming and prices are going up and – nudge, nudge, wink, wink – there are fewer of us now, so you won’t be able to get your steel anywhere else.
It’s baloney. As flat-rolled inventories rise to more than 12 weeks’ consumption at service centers and lead times out of mills fall to 4 weeks, mills will become hungry to sell steel and prices will drop. Unlike in September/October when service centers only had 8-9 weeks’ consumption, they won’t just pull back for a few weeks. Mills that have big gross margins thanks to low scrap and iron ore prices will try and discount to keep rolling.
Et voila – HR coil at $550/ton or less.
by James
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.