RESEARCH: US flat-rolled prices recover as expected but pace of rise surprises

• US flat-rolled prices began to recover in August, as we expected. The monthly average of our daily HRC index hit $473 per ton ($521/tonne), which was $3/t above our forecast.
• The upward momentum has since continued and has done so more quickly than we expected – sentiment has turned around dramatically on fundamental developments.
• The “V”-shaped recovery in underlying demand indicators – alongside more subdued production, imports and inventory – has given leading mills the hope to target $600/ton; $100/t beyond their dreams just a few weeks back.
• We have upwardly revised our forecasts over the next six months but by an average of just $10/t per month and – just as in Europe – do not predict the latest mill targets will be realized.
• As for the flat-rolled space, long products prices also seem to be gaining momentum, supported by strengthening demand – construction output is set to increase in the fourth quarter – and also obsolete scrap.
• Relative to other markets, however, US long products spot prices are elevated. Even with a 25% duty, competitive international suppliers are increasingly able to undercut local offers.
• Should spot prices continue to rise, even if more moderately than for those of flat-rolled products, import penetration is likely to increase, adding to downside risks later in the year.

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