While the domestic US flat rolled market continues to be plagued by sluggish demand, the recent busheling scrap up-tick, combined with low inventory levels, are leading to more optimism about the market and could cause prices to start firming up over the next couple months.
This month's $50 /lt busheling scrap price increase in the domestic market has pressured many US flat rolled mills to consider increasing prices on their respective products. As a result of the $35 /nt increase in US shredded scrap this month, most longs mills announced increases of about $20 /nt ($1.00 cwt. or $22 /mt) over the past week; however, flats products did not appear to have the same momentum.
Nonetheless, Nucor announced a $45 /nt ($2.25 cwt. or $50 /mt) raw materials surcharge (RMS) increase on all sheet products this past week. While this will not directly correspond to a sizable price increase on spot prices, it could suggest that the string of flat rolled price decreases distributors have become accustomed to over the past several months could be nearing an end. However, the future of busheling scrap prices remains uncertain, as some domestic distributors expect prices to trend neutral, if not slightly down, next month. Still, busheling scrap supplies are expected to be limited due to production cuts at automotive plants. It's still too early to predict next month's scrap price move due to these conflicting factors of low demand vs. low supply.
But further evidence supporting the potential stabilization of the the US flat rolled market is the shrinking volume of service center inventories. According to the most recent Metal Service Center Institute (MSCI)'s monthly shipment and inventory report, despite daily and monthly flat rolled shipments declining from March to April, April inventories actually declined by approximately 12 percent from March levels, at from 3.72 million nt to 4.23 million nt respectively. This also resulted in service center inventory overhang decreasing from an estimated 2.8 months in March to 2.5 months in April, according to current shipping rates. A 2.5-month inventory overhang is the smallest amount of excess service center inventory for any products listed in the MSCI report for April. Furthermore, the lack of flat rolled imports entering the US will only intensify the supply issues, giving US producers an increasing amount of pricing power.
Regarding current pricing, most domestic hot rolled coil (HRC) offers have trended neutral for the second consecutive week and continue to range from approximately $19.00 cwt. to $21.00 cwt ($419 /mt to $463 /mt or $380 /nt to $420 /nt) ex-mill in the Midwest. Most cold rolled coil (CRC) offers have also trended sideways for two consecutive weeks and can be found for around $22.00 cwt. to $24.00 cwt. ($485 /mt to $529 /mt or $440 /nt to $480 /nt) ex-Midwest mills. Even though customers may find it a little more difficult to negotiate lower prices than in recent months, mills remain flexible and are not willing to lose any potential orders.
On the import side, foreign HRC and CRC offers are losing their competitive edge against US domestic mill offers. Buyers still have too much angst about the future of the market to consider purchasing offshore product, which generally would not be delivered until late summer. Furthermore, foreign mills have very little interest in the US market and would rather focus on markets that are willing to pay higher prices.
Mexican mills have been firming up prices and their order books are already pretty much full for July. Meanwhile, Venezuelan offers still aren't too attractive either, considering US mills' comparative pricing and shorter lead times. Neither source is offering much HRC to the US in terms of volume, though the few offers out there continue to range from around $18.00 cwt. to $20.00 cwt. ($397 /mt to $441 /mt or $360 /nt to $400 /nt). Mexican offers are delivered to the US border crossing, while Venezuelan offers are duty-paid, FOB loaded truck in US Gulf ports.
CRC import offers have also been very quiet over the past few weeks, with Mexico and China being the only primary sources still offering, though at limited volumes and uncompetitive prices. Mexican offers have continued to trend sideways at approximately $23.00 cwt. to $25.00 cwt. ($507 /mt to $551 /mt or $460 /nt to $500 /nt) at the US border crossing. Chinese offers are much less competitive, with higher rates and longer lead times. Chinese offers can mostly be found within the range of $25.00 cwt. to $27.00 cwt. ($551 /mt to $595 /mt or $500 /nt to $540 /nt) duty-paid, FOB loaded truck in US Gulf ports. India is no longer offering CRC to the US, and both Brazil and Argentina have also exited the US market.