As the US flat rolled market continues to linger in recession, more market players are becoming skeptical that a rebound will even occur by the fourth quarter.
Prices are still trending slightly down, and while most think we have almost reached the bottom, we don't seem to have hit it quite yet.
Domestic offering prices for hot rolled coils remain at a range of $24.50 cwt. to $26.50 cwt. ($540 /mt to $584 /mt or $490 /nt to $530 /nt) FOB mill. However there are some special deals available up to $0.50 cwt. ($11 /mt or $10 /nt) below this range. Domestic offering prices for the slightly weaker product, cold rolled, have come down by around $1.00 cwt. ($22 /mt or $20 /nt) in recent weeks to a range of $28.00 cwt. to $29.00 cwt. ($617 /mt to $639 /mt or $560 /nt to $580 /nt) FOB mill. There are also reportedly some special deals as low as $0.50 cwt. below this range for big customers.
Most domestic producers are still predicting that the market will start to turn around in Q3, but others believe that early 2008 is a more realistic expectation.
A flat rolled trader told SteelOrbis this week, "I doubt that the pricing trend for flat rolled will turn around this year. Mills will do their absolute best to take some production out in the second half of the year and try to strengthen the market going into Q4 when contract negotiations for '08 begin. But demand won't be good enough to put enough strength in the market until the beginning of 2008."
Indeed, mills are doing everything they can to control production this summer, with mills like ArcelorMittal scheduling well-timed maintenance outages during the current season. Inventories have already come down significantly in recent months, but they are still not low enough to stop the downward pricing trend.
As the Metal Service Center Institute (MSCI) reported last week, inventories at US steel service centers totaled 13.9 million tons in June, their lowest level in over a year. Still, flat rolled pricing and shipment figures make it apparent that demand has not recovered enough for the lower inventory numbers to make much of an impact. Shipments from US service centers totaled 4.4 million tons in June 2007, down 14.3 percent from the previous year, and marking the 10th consecutive month of year-over-year shipment reductions.
Despite the weak demand in the US, domestic mills like ArcelorMittal and Nucor, and trading companies like Duferco, Corus and Stemcor are taking full advantage of the weak USD and the relatively stronger flat rolled markets overseas, exporting a significant amount flat rolled tonnage. The material currently being exported is mostly hot rolled and is being exported primarily to Europe and some to South America.
Export data from the US Import Administration show that year-to-date (through May), the US exported 346,200 mt of hot rolled coils (rounded to the nearest 100 mt), including 220,900 mt to Canada, 50,300 mt to Mexico, 32,600 mt to Spain, 24,300 mt to Portugal, and 17,900 mt to Italy. YTD cold rolled exports totaled 202,700 mt, including 94,200 mt to Canada, 88,700 mt to Mexico, 8,000 mt to Estonia, 5,100 mt to Korea, and 1,100 mt to Italy.
There are still very few import offers on the market, but some activity is continuing, with some cold rolled offers coming from China, Mexico, and Brazil. Still, these offers are priced above the domestic numbers and are usually too high to attract much interest.
Most import numbers for HRC continue to range from $29.00 cwt. to $31.00 cwt. ($639 /mt to $683 /mt or $580 /nt to $620 /nt) FOB loaded truck, in US Gulf ports, while CRC offers go for $32.00 cwt. to $34.00 cwt. ($705 /mt to $750 /mt or $640 /nt to $680 /nt) FOB loaded truck, in US Gulf and West Coast ports.
Import totals should continue to be low, which should help service centers reduce inventories further. Globally, flat rolled prices are pretty stable and even showing a slight increase from CIS, though the world market is not as strong as it was in the last quarter.
Data from the US Import Administration show that year-to-date (through May), the US has imported the most hot rolled coil tonnage from: Canada, at 336,471 mt; Korea, at 234,760 mt; Australia, at 128,496 mt; Mexico, at 118,106 mt; and France, at 52,641 mt. Cold rolled imports have come from: Brazil, at 206,355 mt; Canada, at 126,894 mt; China, at 100,138 mt; Mexico, at 57,675 mt; and Japan, at 32,766 mt.
Looking forward, though construction is unlikely to pick up until early '08, automotive demand is expected to improve in the fourth quarter. Another factor which may help to tighten up the domestic flat rolled market is the antidumping case against Chinese pipe, which may result in increased US production and prices for standard pipe, and therefore more demand for flat rolled. Other factors that may come into play are scrap prices (which for the time being seem to be pretty stable) or even this summer's hurricane season, which has been quiet so far, but is expected to register above-average activity levels on the whole.