Although we correctly forecast a significant rise in hot-rolled coil (HRC) prices in the United States in September 2020, our price forecast proved too conservative.
An impressive V-shaped recovery in key economic fundamentals critical to steel consumption is driving stronger demand for steel at the start of the fourth quarter, lending support to prices.
The upturn in sheet steel prices, however, is also being driven by an inadequate supply response to improving demand, with both domestic and import supplies falling short of required levels.
While we understand that mini-mills are operating at nearly full capacity, integrated steelmakers have not yet returned furnaces to production, and in fact there are additional maintenance outages scheduled for October-December.
Flat steel imports are running well below normal levels, and with US prices only now beginning to regain a significant premium over global steel prices, we would not expect to see a notable increase in imports before January 2021.
The weaker value of the US dollar is also leading to higher commodity prices in US dollar terms, reducing the competitiveness of imports in the US market.
We expect to see further impressive gains in sheet steel prices during October, but we maintain our view that we will see a downward correction in prices in November once the buying frenzy eases and steel production continues to rise.
HRC prices in Northern and Southern Europe jumped by 11.9% and 13.1% month on month respectively in September, settling within 2% of our forecasts. Steadily improving demand and restricted local and import supplies helped European producers to introduce higher asking prices.
ArcelorMittal increased its HRC offers in Northern Europe to €530 ($623) per tonne when spot prices were below €470 per tonne, with all main regional producers following this move.
With rising end-user demand and low stock levels in the distribution chain, buyers were afraid to be caught short when mills began to quote lead-times stretching into December, and started to accept higher offers.
We expect that the uptrend will continue through the last quarter of the year, although at a slower pace, with mills determined to keep their asking prices firm amid squeezed margins.
In September, ArcelorMittal resumed operations at two blast furnaces idled earlier in the year, at Fos-sur-Mer in France and Bremen in Germany. Although some of this production will replace output lost while another furnace at Gent in Belgium is being relined, supply should nevertheless increase, and if buyers see shorter lead-times they could start to press for discounts.
The expectation of a decision in the EU’s anti-dumping investigation into Turkish HRC imports, with some market participants believing that the European Commission might require registration of imports from Turkey, led to a halt in trading activity.
Import offers from other suppliers were limited, but a rise in local European prices, amid a downtrend in the seaborne market, might make imports attractive again, creating downside risks to our forecasts.
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