The United States steel market continues to forge ahead. On the heels of Section 232, Covid-19 and the subsequent recession, the market is showing strains through price pressure and volatility.

But that’s not where it stops: US mills have announced price increases amid limited competition from imports and higher raw material costs. And a reduced Section 232 quota for Brazil - the largest supplier of semi-finished goods to the US market - will squeeze supplies even more. Those factors all point to higher US HRC prices in the short term.

Over the long term, higher prices are not a given because of new capacity. US mills plan to bring millions of short tons per year of new capacity to the market in the years ahead - and those plans have not been significantly altered by the pandemic.

US steel mills are on pace to add more than 13.5 million tpy of electric-arc furnace flat-rolled steelmaking capacity at a cost of at least $6.3 billion over the next three years. That is significant because US mills produced 96.9 million tons of steel in 2019, according to data from the World Steel Association; the new capacity represents 13.9% of last year’s total output.

The number is even more striking when output is narrowed to flat-rolled products. The US produced around 50 million tons of steel sheet in 2019, according to Fastmarkets analyst Amy Bennett. That 13.5 million tpy of new capacity would represent 27% of that total.

And increased demand for scrap resulting from the new capacity is already causing prices for the steelmaking raw material to rise. These capacity gains could put downward pressure on finished steel prices, however - something that could squeeze mills’ profit margins.

This contract season is like no other and creates the overwhelming need to keep a close eye on price dynamics - and compel decision-makers to shelve weekly benchmarks that can miss key changes in exchange for daily benchmarks that best protect them from risk.

To learn more, join us on Wednesday, September 9 for a free webinar: Insights to Drive Success in the 2020 US HRC Contract Season.