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Upon the election of the Trump administration in November, 2024, steel market participants understood that new or additional tariffs on imports would be in the offing shortly after inauguration. The ensuing tariff activity including executive orders and social media announcements, has rattled the markets causing increased uncertainty and speculation over additional costs and shortages, reminiscent of recent events which caused price spikes such as that of the Russian invasion of Ukraine or the Covid-19 pandemic.
Higher prices were expected, but the on/off/delay approach of the current administration to tariffs, especially concerning Canada and Mexico, resulted in price surges in February and March reflecting a risk or insurance premium to the current situation.
Seasonally, US steel prices tend to increase in the first quarter over the fourth quarter of the previous year. The average price of hot rolled coil (HRC) for the current quarter is 16.5% above the fourth quarter of 2024. This is below the Q1 2018 % increase as well as the strong covid swings, owing to the relatively weak market that prevailed through 2024 and into 2025. Prices are continuing to rise, so Fastmarkets expects that the Q1 average will shift higher by the end of the month.
Tariffs on Canadian and Mexican steel have been delayed until 2 April 2025 pending an agreement on control of fentanyl into the US or a renegotiation of the USMCA. The renewed 25% steel tariffs on all other countries previously exempt and an additional 10% on Chinese-origin products went into effect on March 12, which Fastmarkets expects to remain in place for the time being.
Once the final tariffs are announced and in place in April, Fastmarkets forecasts US steel prices will begin to soften as actual market fundamentals are not supportive of such high prices. For 2025, Fastmarkets expects HRC prices to peak in the second quarter of the year before moderating through the second half of the year. Q4 2025 is expected to be higher than Q4 2024, however.
Demand is not currently able to support such high prices as construction, manufacturing and industrial production are struggling to move out of a post-covid malaise. The three Biden-era stimulus measures that affected steel demand the most – IRA, IIJA and Chips Act – have now been paused and will likely be cancelled. This means that materials purchased for the projects will likely end up back on the market either as scrap or in distribution and weigh on the market. More significantly, demand from these projects is cut and future planned projects are in doubt.
On the supply side, domestic production can largely make up for the potential decline in imports outside of some specialty products. Current US capacity utilization is running below 80% and new steelmaking capacity is in the offing. Indeed, about 4.5Mtpy of steelmaking capacity aimed at the flat-rolled market is planned or under construction in addition to recent start ups and ongoing mill ramp ups.
Moreover, total US steel production in 2024 fell 2.4% from the previous year with EAF output dropping 4.5% and BOF steelmaking increasing 2.9% year-over-year. Total production has not exceeded 90Mt since 2008. Tariffs are intended to support higher US production as well as potential new capacity, but as we mentioned previously, there was limited uptick in output after the initial Section 232 tariffs in 2018 and global market conditions will also limit that effectiveness.
Increased tariffs in the US as well as other import targets, will increase overall competition for available sales, resulting in lower prices in non-tariffed countries. The major markets of Europe and Asia also face weak fundamentals with HRC price movements in these markets generally flat compared to the USA. Demand fundamentals are weak with Europe skimming near recessionary conditions.
The current price differential between the US HRC price and the Northern EU HRC price – the next highest price on the global market – has widened to 59% and continues to rise. Pricing in the rest of the world above the new tariff levels invites an import response. Whether that results in a near term import surge, depends on the level of stocks on hand as well as the confidence that market participants have in the durability of the current policies. Ahead of the inauguration, US steel import tonnage increased, posting a 43% bump month-on-month and a 26% year-on-year rise in anticipation of higher prices for these products. Buyers may hold off on further purchases for more certainty although lower offers could move the market without a significant number of actual buys.
As mentioned above, the current uncertainty is supporting the market and will continue to do so well into the second quarter, until fundamentals prevail and deflate the current support. Moreover, there is growing downside risk to steel demand and pricing given persistent inflation concerns and flagging consumer sentiment. The Federal Reserve is unlikely to lower rates in the near term and potentially through 2025. We anticipate a bumpy ride ahead but will strive to keep abrest of the happenings and their market effects.
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