US hot-rolled coil index inches up on Section 232 quota fears

Hot-rolled coil prices in the United States inched up for a third straight week as some market participants questioned whether widespread speculation about a summer correction would survive a recent plunge in imports.

American Metal Market’s hot-rolled coil index stands at $43.96 per hundredweight ($879.20 per ton), up 0.2% from $43.87 per cwt ($877.40 per ton) a week ago and up 34.7% from $32.63 per cwt ($652.60 per ton) at the beginning of the year.

Lead times remain in a wide range, from four to 10 weeks, according to market participants and mill lead-time schedules.

The latest upward move comes as mills continue to seek $45 per cwt ($900 per ton) – and $46 per cwt ($920 per ton) in some cases – for hot-rolled coil.

$50 cwt on the horizon?

Hot band prices are at their highest point since they hit $45 per cwt in April 2011. And some market participants think the number could go as high as $50 per cwt ($1,000 per ton) should firm demand and Section 232 tariffs and quotas squeeze supplies.

Hot-rolled coil has not reached $50 per cwt since early September 2008 – immediately before the financial crisis hit – according to American Metal Market’s Price Tracker. And several buyer sources said they were ordering steel only as needed because the downside price risk is much greater than upside potential.

“The markets are good. But [customers] are not doing big tons,” a mill source said.

Those predicting that domestic prices were at or near a peak pointed to high import volumes in March and April. But the view that prices had topped out did not appear to be as widespread as it was earlier in the month.

Imports fall off a cliff

“We’re trying to buy every pound of steel we can get,” one Midwest service center source said. That means buying from other service centers if material is not available from mills.

His company has found competitors willing to sell steel below current mill prices, probably because they fear prices falling and their inventories losing value. He said that outlook was mistaken given that imports have already started to plunge in anticipation of Section 232 quotas on key trading partners such as Canada, Mexico and the European Union.

The US was licensed to import 3.44 million tonnes of steel in April. May’s figure stood at only 376,283 tonnes as of Tuesday May 8, the last day for which data was available from the US Commerce Department. If imports continue to arrive at their current rate, May volumes will total less than half April volumes. And that trend was more pronounced in the hot-rolled coil arena, where the US was licensed to import 243,920 tonnes in April but only 18,172 tonnes as of May 8.

“We had a big run-up when everyone was buying ahead of May 1. … Now import licenses are falling off a cliff,” a second Midwest service center source said.
He was referring to the Trump administration’s self-imposed deadline – subsequently pushed back to June 1 – for exemptions to Section 232 tariffs and quotas.

Trade attorneys told American Metal Market they had expected the deadline to be extended. But foreign steel consumers – while aware of that likelihood – told American Metal Market they could not afford to be on the hook for duties and thus scaled back purchases ahead of May 1.

The downward trend on imports might continue because the Trump administration is likely to push for hard quotas on Canada, Mexico and the EU, sources said. The exact contours of some of those potential quotas – and whether other countries would agree to them – was not clear as of May 11. But the immediate impact was: “The mills are sticking to their guns,” one end-user said.

Cold-rolled, galvanized wobble
Hot-rolled coil is the hottest of the three major flat-rolled steel markets, sources agree. There is less consensus on the direction of cold-rolled and galvanized prices.

American Metal Market’s price assessments for cold-rolled coil and galvanized base prices have slipped to $49.75 per cwt ($995 per ton), down 0.5% from $50 per cwt ($1,000 per ton) a week ago.

Cold-rolled lead times range from four to 10 weeks and average six to seven weeks, putting them roughly on par with hot-rolled lead times, according to mill lead-time schedules and market participants.

Hot-dipped galvanized lead times are between six and 12 weeks – or into early August at some plants.

“You need to have a seat at the table when the music stops. And just because you are [a big end-user] doesn’t mean you will,” a second mill source said in reference to a potential steel and aluminium supply squeeze.

An end-user shot back that it was US mills – not buyers – who should worry about attracting import competition should they continue to push prices higher “The foreign mills will be able to pay [duties and tariffs] and bring it in,” he said, noting that some foreign steel suppliers are already offering material – inclusive of anti-dumping and countervailing duties as well as Section 232 tariffs – at numbers competitive with US mills.

Domestic mills continue to seek $50-51 per cwt ($1,000-1,020) per ton for cold-rolled and galvanized base prices but may make concessions in part because of the large volumes of foreign material that have arrived over the last two months, sources said.

Dom Yanchunas, New York, and Nat Rudarakanchana, London, contributed to this report.