A rash of mill price increases has been announced since late September, and production levels remain low year-to-date. What does it all mean for market conditions to close out 2023 and into the new year? We caught up with Mark Gross, Ryerson’s assistant director of supply chain, for his take.
What factors drive the recent influx of price increases in the steel market?
Some might think it's like déjà vu all over again with rising prices. The recent surge in steel prices can be attributed to the resolution of the UAW strike, providing mills with an opportunity to capitalize on increased demand conditions.
With the strike resolved and extended lead times resulting from year-end outages and year end buys, mills are taking full advantage of the current market conditions. This, combined with historical trends of heightened demand in the first quarter, has prompted mills to raise prices heading into the near year. However, there's a sense that mills may be acting opportunistically, and there is a possibility that prices could start to decline in the early months of next year.
Why has the price gap between plate and hot roll steel narrowed recently, and is this trend expected to continue?
The narrowing gap between plate and hot roll steel prices is a noteworthy development, signaling a departure from the prolonged period during which plate prices remained elevated, mostly due to robust mill direct demand and a limited number of domestic mills with a significant influence over the U.S. market. Plate prices are now declining and that gap between HRC and PMP has started to move closer to historical norms.
Is the current mill utilization rate of around 75% typical for this time of year, or should it be higher?
The current mid-70s utilization rate is considered somewhat low, with acknowledgment that some flat-rolled mills are operating at a slightly higher rate. Several factors, including newer mills' struggles to reach full production, contribute to this.
While the historical stability threshold suggests a utilization rate in the mid to upper 80s, recent market dynamics indicate that mills have discovered a formula to remain profitable with lower utilization rates. This reflects a shift from traditional industry norms.
What is the outlook for the steel market as we approach the end of the year, and what message is Ryerson conveying to customers?
As the year concludes, Ryerson anticipates a typical price ramp-up at the beginning of the year, a trend observed in previous years. However, the outlook for the rest of the year remains uncertain due to the upcoming election year, introducing potential market fluctuations.
Ryerson closely monitors mill performance, contract commitment volumes for the next year, and market trends. We advise customers to stay informed and prepared for potential market volatility, emphasizing the importance of adaptability in navigating the dynamic steel market landscape.
The Downward Pressure on Nickel
If projections hold, the market is in for an excess nickel supply over the next three years. But is that a good thing? Let’s unpack the situation as it stands today.
Projections from J.P. Morgan call for a surplus in nickel production over the next three years, mainly due to Indonesia's increasing production of class one nickel.
The new low-cost nickel supply influx could drive nickel prices, currently above $8/lb., to a multi-year bottom, possibly reaching as low as $6 to $6.50/lb. The price of nickel has been slowly unwinding following the significant short squeeze in March 2022.
But could that price point be one in which nickel producers deem unprofitable? Nick Webb, Ryerson’s director of risk management, commodities hedging, says that if nickel prices continue to decline, Indonesia could consider rationing production to avoid flooding the market.
Demand could take a hit since Ford and GM announced plans to curtail investments in the EV space in the aftermath of the autoworkers strike. This could contribute to a short-term dent in the growth of EVs, affecting demand for nickel and other materials used in batteries, including lithium. This additional factor further complicates the overall supply-demand dynamics in the nickel market.
What’s the impact on stainless prices?
It is important to note that nickel is a significant factor in the stainless surcharge, which influences stainless steel prices. While surcharges are decreasing, the base prices of stainless steel may not drop as quickly due to the formulaic pricing and the limited number of major stainless steel producers in the United States.
Webb anticipates some pressure on base pricing in 2024 compared to 2023 but highlights a few dominant players' slower base price adjustments in the domestic market.
What are we seeing for aluminum?
The same analysis from J.P. Morgan shows that for aluminum, assuming a production level of around 70 million metric tons, the expected surplus over the next few years is approximately 300,000 tons. This indicates a relatively balanced market in the aluminum space from a supply-demand perspective.
The Uncertain Global Logistics Landscape
The freight market is experiencing a shift from the high demand levels of 2021 and 2022 to a decline in rates and load-to-truck ratios. Many have deemed this as a "freight recession" and has resulted in some prominent players in the trucking industry exiting the market.
Freight carriers involved in bringing materials over longer distances to customers in full truckloads are operating at a loss. It is important to note that this has less impact on metal distributors with dedicated fleets, like Ryerson.
Overall, freight is cyclical, acting as a leading indicator for the macroeconomy. Declining freight rates and increased capacity signal a slowing economy, as goods movement decreases with lower demand for durable goods. Conversely, freight rates rise as the economy picks up and capacity tightens.
Elizabeth Efta, Ryerson’s senior director of logistics. “I anticipate a shift where rates will need to rise through carriers leaving the market or continued consolidation, ideally coinciding with positive economic news.”
The rising fuel costs contribute to the unsustainability of this situation, especially with increasing diesel costs and uncertainties related to global events like turmoil in the Middle East and Ukraine.
Jeff Penz, Ryerson’s director of international procurement and recyclables, highlights the significant impact of rising fuel costs on imports.
“Although overall rates have returned to pre-pandemic levels, the major challenge in moving international freight is the availability of carriers. While there are numerous carriers, they are competing for limited space. Carriers sometimes miss scheduled port calls due to insufficient cargo for a designated port, leading to logistical challenges and added expenses,” says Penz.
On the Midwest Premium front, it is currently hovering around 20 cents with little significant movement
Ryerson: The Metal Supplier of Choice
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With a vast inventory of steel, stainless, aluminum, alloy, and more, we are committed to providing our customers with the metal and services they need to succeed. We stock a range of shapes and sizes, or we can provide processing and fabrication for every product we sell.
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