By Chris Houlden, CRU Research Manager
CRU held its annual Steel Briefing in New York City on June 17. This Insight summarizes the key takeaways from papers presented by CRU North America market specialists Josh Spoores and Ryan McKinley.
• Up to 20 Mt of new hot-rolling and over 8 Mt of steelmaking capacity could come on stream in the USA in the next four years, in part spurred by the Section 232-fuelled price and margin gains in 2018.
• This will leave a hangover of excess domestic supply, which will depress domestic steel prices and margins.
• Further margin squeeze risks for mills take the form of further or complete repeal of S232, and higher scrap prices arising from greater domestic scrap demand.
What at first sight appeared as a leg-up to domestic steel producers – S232 – may well have had the unintended consequence of weakening the U.S. market in the longer term through encouraging home-grown oversupply. While not all the intended new capacity is a direct result of S232, nor may all of it come to fruition, all forecast scenarios point to weaker mill margins and lower steel prices in the period to 2023.
Industry optimism, as measured by Steel Market Update’s Steel Buyers Sentiment Index, remains in tepid territory despite slight upticks in both the Current and Future Index readings this week. This is the first time since early April that the indexes have not shown another decline, perhaps signaling some sort of emotional bottom. But weak steel prices and uncertain demand clearly continue to dampen industry attitudes.
One thing is certain in this crazy steel market, service centers are taking their spot prices lower and lower as each week passes. Manufacturing companies are almost unanimous in their view that flat rolled steel distributors are decreasing their spot offers. We saw 93 percent of the manufacturing companies responding to last week’s SMU flat rolled and plate steel market trends questionnaire reporting service center spot prices as in decline compared to two weeks ago (see below). This represents an increase of 14 percentage points compared to the beginning of the month of June, and is 28 percentage points greater than one month ago.
With steel prices at such surprisingly low levels, it’s only a matter of time before the domestic mills announce a price increase. The only point of debate is when. There’s clearly some disagreement over whether the market has found a bottom yet.
Slightly more than half of the service center and OEM executives responding to Steel Market Update’s market trends questionnaire this week believe the domestic mills could announce a price increase within the next 30 days. The other half feel prices still have further to fall before the market will support a price hike. If the mills do make an announcement soon, more than two out of three respondents to SMU’s latest poll say they will fight it.
Construction employment increased in 31 states and the District of Columbia from April to May, according to an analysis of Labor Department data by the Associated General Contractors of America. In the 12 months to May 2019, 39 states and D.C. added construction jobs.