Are steel prices nearing a bottom? Following a run-up and a subsequent drop over the course of 17 consecutive weeks, multiple factors could be suggesting that steel prices are nearing a trough.
Are Import Prices Changing?
At the height of the price surge for domestic steel, prices for Chinese and European steel, conversely, remained relatively low. That made imported steel appealing for some buyers.
As of late, however, the pricing spread between U.S. and foreign steel has tightened, thus negating that appeal for some to go the import route. Prices as of September 7:
· China: $522/ton
· Europe $708/ton
· U.S. $790/ton
What Are Current Scrap Prices?
Some mills produce steel from scrap. As such, scrap prices tend to be a proxy for fair value on the price of steel. The chart below looks at busheling scrap futures compared to futures prices, plus $300. The $300 is the estimated fixed spread that mills need to be profitable (i.e., accounting for such things as labor, energy, logistics). As evidenced by the chart, these two prices are converging.
Mill Pricing Increases
Perhaps in an attempt to stabilize the market, multiple mills announced price increases during August. For example, Nucor $50/ton, Cleveland Cliffs & NLMK $75/ton.
So, what are we watching as we head into the final quarter of the year? Mark Gross, senior product manager, carbon flat roll, offers this: “It will be interesting to see how prices react to the new mill capacity coming online in the second half. The new capacity could be offset by seasonal maintenance outages that most mills take at the end of the year.”
Aluminum Lead Times Contract
When it comes to aluminum lead times, aluminum extrusions have been elevated for quite some time. Over the past year, we’ve also seen aluminum extrusions come under allocation.
Some of that has been attributed to labor shortages at mills along with strong demand. But as we turn into the final few months of 2022, could these two factors be loosening up?
Jeff Nodes, Ryerson’s supply chain director, says lead times have shown significant improvement over the last 30-60 days. With standard shapes back into the normalized range of 3-5 weeks.
While lead times for custom shapes remain extended in many cases, Nodes has seen them retreat by about 7-8 weeks recently, varying by press but on average running in the 25-35-week range.
On the allocation front, he anticipates that some soft alloy extrusion mills will start to eliminate allocation on standard shapes, as they will have the ability to operate within the current production lead times.
“As we go into the second half of 2022, many soft alloy extrusion mills anticipate the market demand will soften and that we could see lead times continue to narrow. In conjunction, it would not be a surprise to see soft-alloy extrusion depot inventories continue to build at the mill level” says Nodes.
What’s Next for Energy Prices?
On the September 1 episode of Cup o Joe, Nick Webb, Ryerson’s director of risk management, commodity hedging, explored some trends in global energy and potential the potential market impact.
Since April, the price of crude oil and refined products have come off highs by around 20%.
“It is worth noting that some OPEC members said that financial markets seem to be deviating from what they have seen from physical supply demand markets. It is sort of a hint that in the event this does not correct, OPEC could cut production, which flies in face of what the Fed is trying to achieve in terms of bringing down inflation,” said Webb.
Coal, Natural Gas, Electricity:
The cost of natural gas in the U.S. is at the highest point in nearly 11 years, at $9.30/MMBTU. Prices in Europe are roughly eight times higher than those in the U.S. In fact, prices in countries like France and Germany are 10 times higher than their historical average.
“When you have an energy market that is this tight, the smallest tweaks in the supply chain can cause dramatic knock-on impacts. For example, you get one fire at one facility or any other type of hiccup, prices could spike two-to-three times higher. That has real impact on everything from heating homes to producing metal,” said Webb.