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Hope springs anew in US steel industry as prices bounce back

It was a rough winter in the US this year, even more so for the domestic steel industry, which saw prices on its bellwether product, hot-rolled coil (HRC), decrease by about $200 a short ton, or roughly 30%.

Arriving in tandem with belated spring weather, long-awaited HRC price increases were announced this week, providing hope for a turnaround in the collapsed market.

Like the green shoots of spring, the mill price increases are small – on the order of $20/st. But poking up from the barren landscape of the past few months they are being seen as welcome relief by sheet producers and distributors alike.

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HRC prices are now expected to have bottomed out at $440/st, down from about $640/st last November.

Steel has always been a cyclical business, but it now seems the cycles are more persistent. US mills were able to keep their domestic sheet prices higher than global prices for two years, defying gravity as never before. But that meant increased imports of lower priced steel, which oversupplied the market and contributed mightily to the months-long deterioration of domestic prices.

Now many market players, while happy to hear prices could be moving up instead of down, are saying the rebound could be a slog as well.

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Some believe the price hikes announced this week will mainly serve to stabilize the market and keep prices from falling further. That would be good news as well. US HRC prices fell below $400/st in 2009, and that is roughly the price today of imported HRC delivered to the Port of Houston.

US mills managed to keep their HRC prices above $600 ex-works practically all of 2013 and 2014, peaking at $695/st last May, before dropping below $600/st in December. Meanwhile, major markets in Europe and Asia languished with domestic ex-works prices below $600/st during that two-year period, with many close to an average of about $550/st and some close to $500/st.

All these major developed markets are now bunched at HRC priced between roughly $400/st and $480/st – with the US market squarely in the middle.

Global parity has been reached, it seems, and six-months of steady price declines have whetted the US market’s appetite for some upward motion.

The price hikes announced so far this week have been a bit scattered, a mix of formal moves and higher mill quotes. And not all mills had announced their intentions at the time this was written, although most, if not all, were expected to follow. The market has taken this development as a sign of better times.

Mills obviously would be the main beneficiaries, but so would distributors and service centers. One might think these downstream links in the supply chain had been reveling in the lower and lower prices they were paying to the mills this year, but any joy over working a deal dissipates once it becomes clear that price cutting is rampant. The ratcheting down of mill prices pulls down the value of distributor and service center inventories as well.

The only winners in the steady decline of sheet prices have been end users, especially those who buy on the spot market. Now that prices are poised for a turnaround, there is not much concern prices will surge – and if modest price hikes keep their steel suppliers healthy, that also benefits steel users.

This week’s price hikes had been rumored in recent weeks and some had speculated that if the moves were too aggressive, supply too overbuilt, or demand too soft, the moves could flop. The thinking in some camps was that it was better to muddle along than stick your neck out and fail.

These modest price hikes seem like they could be easily absorbed, but if they don’t fly it could prompt some alarm and spring could turn into a summer of discontent.