Steelmakers worry prices could hit break-even thresholds
The Raw Steels Monthly Metals Index (MMI) fell by 2.34% from November to December. Ultimately, U.S. steel prices remain decidedly bearish. Meanwhile, hot rolled coil prices saw the most substantial decline, falling 12.6% month over month. Plate prices, on the other hand, mainly remained sideways but continued to edge slowly downward with a 2.9% decline.
Eager to stop the price descent, U.S. steelmakers once again announced price increases on flat-rolled products. Cleveland-Cliffs led the initiative in late November with a $60/st cost increase on new orders. This was soon followed by $60/st price hikes from both U.S. Steel and Stelco. By Dec. 1, Nucor and ArcelorMittal Dofasco had also followed suit.
Where is the Bottom?
Prior to the cost increases, steelmakers cautioned that hot rolled coil, cold rolled coil, and hot dipped galvanized steel prices were nearing their respective break-even points. Apart from a roughly two-month rebound between March and April, prices have declined since October 2021. That said, they remain above the all-time lows recorded since MetalMiner began tracking prices in 2012.
For example, hot rolled coil prices dropped as low as $362/st in December 2015. Input costs have increased considerably since then, so the price floor will likely sit above that level. But as the trend points downward, steelmakers are right to worry that prices may soon hit their respective break-even thresholds.
HRC Could Hit the Bottom First
Source: Insights
This is not the first price increase steelmakers have announced in recent months. Indeed, the last occurred in August when Cleveland-Cliffs and NLMK USA raised prices by $75/st. This came directly after Nucor announced a $50/st increase earlier that month. The effect of those hikes proved short-lived, however. While steel prices briefly flattened in August and September, the downtrend soon resumed at full speed.
Currently, there appears to be no meaningful contraction of supply or increase in demand. As such, the latest increases will likely prove equally, if not more, ineffective. In fact, continued mill ramp-ups and rate hike increases from the Fed will likely exacerbate market oversupply. That is, until break-even points force mills to begin idling production.
Source: Insights, Chart & Correlation Analysis Tool
In the interim, HRC steel prices appear poised to hit bottom first. Since the pandemic, strong appliance and auto demand added considerable support to CRC and HDG prices. That support soon caused the spread between HRC, CRC, and HDG prices to expand. Since 2012, the average delta between HRC and CRC totaled roughly $168/st. Although it began to narrow in March, that delta remains above average at $236/st. This would suggest that CRC and HDG have slightly further to fall.
Plate Steel Prices Remain the Outlier – For Now
Contrasting with the attempted price increases on HRC, CRC, and HDG, Nucor recently announced a $140/st price cut to all of its plate products. In early November, the company stated that plate prices would remain flat for December. There is yet to be any word on what may have led to the change in policy.
Source: Insights, Chart & Correlation Analysis Tool
So far, plate prices have remained strong relative to other forms of steel. For instance, HRC prices sit 67% below their all-time high in October 2021. On the other hand, Plate steel prices have fallen just 17% from their late-April peak. However, plate prices continue to edge downward, which suggests the plate market remains oversupplied, if narrowly. In the next year, that oversupply will expand as new capacity comes online. This could push the price trend from sideways into an actual downtrend.