RESEARCH: US HRC prices poised for record Q1 2021

This month’s key North American steel forecast highlights:

• US hot-rolled coil prices moved in line with our forecasts in January, with actual prices modestly exceeding our forecasts for the month. Fastmarkets’ US HRC index averaged $1,099 per ton in January, slightly above our forecast price of $1,075 per ton for the month. We have upwardly revised our price forecasts for the remainder of 2021, however, we maintain the view that the first quarter of 2021 will represent the pricing peak, with prices in the first half of the year far outpacing prices in the second half.
• In their latest results calls, domestic mills highlighted impressive demand from both the automotive and residential construction sectors. With automotive demand rising sharply following the collapse in production during the second quarter of 2020, automakers are striving to not only meet demand from customers, but also to replenish depleted inventories.
• Despite automakers’ efforts to increase output, the recent semi-conductor chip shortage is negatively affecting US automotive output, with both Ford and General Motors scheduling downtime for assembly lines in response to the shortage. We understand the outages could potentially reduce Ford’s vehicle output by up to 20% in the first quarter of 2021. Given the extreme tightness in sheet supply, we do not foresee the temporary automotive outages having a notable impact on sheet market dynamics, but could lend further support to prime grade scrap prices in March/April.
• Domestic mills also cited buoyant growth in residential construction prompting rapidly rising demand for appliances, heating, ventilation, and air conditioning (HVAC) systems, and garage doors, all key flat product end-use markets.
• While demand remains buoyant, there are early signals of potentially higher supply from both domestic and import sources, supporting our view that the first quarter of 2021 will represent the peak for flat product pricing in the current cycle.
• US long product prices posted further gains in January, with upward momentum forecast to continue in February, despite the correction in obsolete scrap prices this month. Domestic long product prices are forecast to trend stable to higher in the first quarter of 2021, helped by resilient demand, tight steel supply, and limited import competition.

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