Prices & protectionism: When to test the water and when to push the boat out

During the past couple of years, US steelmakers, especially on the carbon flat-rolled side, have been consistently reporting better margins, albeit after a horrendous 2015 when falling demand was exacerbated by high import volumes.

But with the US economy now booming and predicted to accelerate this year, it looks as if things can only get better through 2018. Unsurprisingly, some of the most profitable products in the US are in protected markets, such as in hot-rolled sheet (HRC), cold-rolled sheet (CRC), and hot-dipped galvanized sheet (HDG). It is in these particular (carbon flat-rolled) categories where so-called “China bashing” has been at its most pronounced with anti-dumping duties against China-origin flat-rolled reaching the hundreds of percent.

In our North American Steel Market Tracker (NAS) where we consistently forecast these benchmark flat-rolled (in addition to long products) prices to a minimum of 95% of their value last year, we anticipate another strong year for producers and even better margins. However product by product we predict that there could be some significant changes coming. Last year, US apparent steel consumption and prices* recovered strongly (up 8.1% & 12.7% respectively) following a two-year depression. But as is always the case in this market, it was the external suppliers who benefitted most. 

While we estimate that local producers increased their US sales by 6.6% overall, imports rose by twice that speed at 12.2%. For CRC and coated sheet (mainly HDG), meanwhile, imports were in-line with the trend, regardless of anti-dumping; only HRC imports fell. More damagingly for US coaters, local shipments fell. Losing market share is not a problem for producers in a tight and strengthening market but to see your sales going backwards amid a boom is another thing entirely!

Local coaters will be hopeful that section 232 will alleviate the pressure on their businesses by restricting non-China origin imports as well but should that fail, we can certainly expect a reaction this year as both cold-rollers and coaters will attempt to “push the boat out” rather than “test the water” and offer US users a more competitively-priced option.

Fortunately for US coaters, international competitors are losing money hand over fist and will be desperate to follow the US lead and maximize their prices. This should go some way to supporting margins at US producers. For HRC, by contrast, last year’s developments suggest that local producers will become more aggressive on price. Already ArcelorMittal’s target price for HRC “base” prices in the US is currently $750 per (net) ton whereas their equivalent push in northern Europe is just €600 per metric tonne or $670 per ton. EU and US base prices aren’t the same for sure, in Europe they’ll charge you for all dimensions unlike in the US where “base” pricing includes some commonly traded sizes. However, the “free” extras in the US are only worth €15 per tonne in Europe revealing that in the US the world’s leading producer believes prices should be $70 per ton higher than in Europe, which is more than double the actual premium AMM and MB price assessors recorded last year. While we are already seeing US customers resist high prices down the supply chain, there is a sizeable risk that this resistance will spread if US producers prove too ambitious on HRC.

* Prices refer to the average of AMM’s HRC & rebar prices, FOB Midwest mill