US hot-rolled coil index inches up; post-Section 232 peak in sight?

Hot-rolled coil prices continue to climb, but the pace of increases has moderated - at least for now.

American Metal Market’s hot-rolled coil index stands at $41.78 per hundredweight ($835.60 per ton), up 0.5% from $41.56 per cwt ($831.20 per ton) a week ago and up 28% from $32.63 per cwt ($652.60 per ton) at the beginning of the year.

Hot-rolled coil lead times span four to eight weeks, market participants said.

Mills continue to offer $42.50 per cwt ($850 per ton). But transactions were recorded at well below that level.

“I think we’ll see one more round of big hikes – 10%-15% – and then that will be the max,” one steel buyer said. “So short-term things will be tight and there will be allocations. But in a couple of months, you won’t see the kind of apprehension that you’re seeing today.”

Case in point: The world export price for hot-rolled coil is $630 per tonne, up 9% from $578 per tonne at the beginning of the year, according to SteelBenchmarker data. A 25% tariff would bring that price to $787.50 per tonne – a figure that could be competitive with US prices.

Supplies ease, credit squeezed
The result: Imports will return to the market once Section 232 remedies are known in greater detail, sources predicted. And while the coil market is tight, it is not facing the more draconian price in effect at time of shipment that characterizes the plate market.

The bigger concern on the sheet side could be credit, some sources said. At current high prices, customers are reaching their credit limits more quickly than they did in the past. And creditworthiness is in some cases the determining factor in how tons are divvied up when allocation is necessary, one Midwest service center source said.

“One of our mills visited with their head honchos and said, ‘Stick to terms and pay early,’ ” the source said. “Lead times might stretch out, but their real concern right now is credit.”

Baked in
But such concerns might prove short-lived, two industry analysts suggested.

“Current sheet spot market trends are unlikely to persist,” KeyBanc Capital Markets analyst Philip Gibbs wrote in a research note dated Thursday March 15. Customers bought aggressively ahead of the Section 232, and imports will be a bigger factor in the second half of the year. The second half, which is typically characterized by weaker automotive demand, will also see additional capacity – namely a blast furnace at US Steel’s Granite City Works in the state of Illinois – come online, Gibbs noted.

“The impact from Section 232 has already been reflected in US HRC prices but has not been reflected in other products such as [oil country tubular goods], where imports accounted for a much higher market share,” Novid Rassouli, an analyst at Cowen, wrote in a research note on March 16.

The US imported 2.23 million tonnes of hot-rolled coil in 2017. Canada, the top foreign supplier, accounted for 41.5%, or 933,378 tonnes, according to US Commerce Department figures. And Canadian mills typically keep prices on par with their US competitors.

US ports received 3.17 million tonnes of foreign oil country tubular goods last year, per Commerce data. South Korea, the top foreign supplier, accounted for 33.4%, or 1.06 million tonnes. And South Korean mills typically price below US producers.

Canadian sources said they expect Canada to gain a long-term exemption from Section 232 tariffs. The country currently has a waiver pending the outcome of North American Free Trade Agreement negotiations. The bigger concern for Canada is imports destined for the US being redirected to Canadian ports, the sources said.

Cold-rolled and galvanized
Meanwhile, American Metal Market’s price assessment for cold-rolled coil clocked in at $49 per cwt ($980 per ton), up 2.1% from $48 per cwt ($960 per ton) a week ago and up 16.7% from $42 per cwt ($840 per ton) at the beginning of the year. Hot-dipped galvanized base prices have followed a similar trend.

One key difference between the market this year and last year is that – given the steeper rise in hot band prices – spreads between hot-rolled coil and value-added products have narrowed.

Mills in recent years have tried to maintain a $10-per-cwt ($200-per-ton) spread between hot-rolled and cold-rolled prices. That spread is now $7.22 per cwt ($144.40 per ton), a number more in-line with historical norms.

Nat Rudarakanchana, New York, contributed to this report.