Gerdau expects steel metal spread to remain stable in North America

The company’s metal spread – the premium between finished steel prices and scrap costs – averaged $415 per short ton in North America during the second quarter of this year, slightly up from $411 per short ton in the first three months, its earnings report showed on Wednesday.

Ferrous scrap prices have recovered since the second quarter, a factor that could pressure the metal spread, but steel prices also increased throughout the April-June period, the CEO said on Wednesday.

Fastmarkets’ price assessment for steel bar hot-rolled special bar quality (SBQ) 1-inch round 1000 series (carbon), fob mill US was $31.50 per cwt ($630 per short ton) on July 17, down from $33.25 per cwt on June 12 – the highest level since March. It was still, however, higher than $31 per cwt assessed on April 13, a 2020 low.

Despite having reported a 10% year-on-year decrease in sales volumes for its North America unit in the second quarter, Gerdau said the construction sector in the United States was still strong amid the Covid-19 pandemic.

“Our order backlog in the US is back to pre-pandemic levels from March,” Werneck said. “Construction and infrastructure are showing resilience, but demand from the energy sector is recovering at a slower pace.”

The executive also expects that part of the investments made under a US $1.5-trillion infrastructure bill would begin to materialize soon, however, the company is to keep an eye on both unemployment and the November elections in the US to gauge the demand estimates going forward.

Additionally, Werneck said the special steel division in the US had suffered a larger impact from the Covid-related steel consumption drop because it mainly supplies the automotive industry.

In Mexico, Gerdau was able to post better results – albeit undisclosed – because it was focused on beams, not rebar, the CEO said, adding that the company expects to meet its internal target for 2020 despite the pandemic crisis.

“Mexican construction activity fell during the pandemic but this was harder on rebar producers than us,” Werneck said. “Mexico have been importing beams for many years now, and our rolling operations are able to supply the domestic market with that product, something that has actually increased our market share [since the pandemic started].”