Mills’ announcements targeted $625 per short ton ($689 per tonne) for hot-rolled coil, and by the middle of November spot prices came close to that level, as Metal Bulletin’s US domestic HRC index reached $621 per short ton. An increase of $35 per short ton in less than a month was possible because of a combination of factors. HRC imports have been declining on a month-on-month basis since July and planned fourth quarter maintenance outages have seen supplies tighten as mills have reduced shipments. In addition, weak domestic pricing in the US in the previous months led to domestic HRC being priced below imported material, a phenomenon unseen since June 2013. The success of October’s price hike encouraged US mills to announce another $30 per short ton increase in mid-November. However, we doubt if underlying demand is strong enough: although HRC prices rose, cold-rolled coil and base hot-dipped galvanized prices declined in November, hinting at a weakness in downstream sectors.
European producers benefited from a narrow spread between domestic and import HRC prices and strong demand from the construction sector. This helped mills to maintain their offers at a stable level during November, despite signs that the industry has started an end-of-year destocking. Data from the German distribution sector have shown that inventories for both flat and long products have fallen on a month-on-month basis in August and September. With destocking expected to continue throughout the fourth quarter, slowing demand from the distribution chain should start putting pressure on European prices.
Government-enforced output cuts in China officially began in the middle of November, and as some areas started to implement these reductions ahead of schedule, there are signs that output has already started to fall in Northern China. Metal Bulletin Research maintains the view that demand will soften in the near term, however, reductions of supply will be large enough to prevent a fall in prices. As a result, we upgraded our Chinese HRC forecasts (for both domestic and export prices) to show a price increase in December, and then to remain on a stable level throughout Q1 2018. The downside risk comes from an uncertainty around production cuts, and if the supply tightening during the whole of winter will not be so severe as recent weeks have shown.
