US South HRC index holds below $40/cwt due to buyer holdouts; imports remain wildcard

Fastmarkets’ weekly steel hot-rolled coil index, fob mill US South was calculated at $39.94 per cwt ($798.80 per short ton) on Wednesday February 8, up by 4.17% from $38.34 per cwt one week earlier but 3.76% lower than the US Midwest index, which hit $41.50 per cwt on Wednesday.

For January, the South index averaged $35.98 per cwt, while the Midwest index averaged 3.93% higher, at $37.45 per cwt.

Inputs were collected in a range of $38.50-$40.50 per cwt, with offers at the high end, a deal toward the middle and assessments throughout the range.

Lead times were reportedly into March or April depending on the mill.

Market opinions were split on whether prices in the South will raise at the same rate, or reach the same level, as those in the Midwest.

Some sources said the Midwest-South price spread seen throughout January had begun to close due to high new base prices from mills in both regions.

“I think the South is catching up [to Midwest prices] now,” a trader source said. “The difference is getting really tight right now. It looks like southern prices will continue to go up because scrap is higher than the previous months — it’s [been going up since] December. I think this will support high prices in the South.”

But other sources felt that demand was not good enough to justify continued price increases, and that the recent mill hikes would be short-lived enough to wait out.

“Demand is good, but I just don’t think it’s as good as the mills sometimes portray,” a distributor source said. “The idea that demand is good enough to keep pushing this number up and people are just gonna take it — I don’t think a lot of people have shortages, so they’re [willing to] wait and see how it goes.”

Southern buyers may have stocked up early enough in January to avoid some of the higher-priced deals occurring in the Midwest, according to a second distributor source.

“We bought last month, when mills were quietly filling holes in their weak order books,” the second distributor source said. “They have scared up a little momentum by being dishonest about lead times, but [they] cut deals at the end of the month to fill the schedule. We will wait for the next ‘deal.’”

“I really feel sorry for the buyers who are paying $40 per cwt,” the second distributor source added. “I suspect real volume spot market HRC will trade around $36 per cwt for March and April.”

The import factor

Imports have traditionally served as a stronger bargaining chip in the South compared with the Midwest, due to diverse origin points shipping to Houston compared with the Canada-dominated northern market.

However, buyers have reported for months that imports are hard to find — and nearly nonexistent at competitive prices — due to global factors, including the war in Ukraine, Europe’s energy crisis and Turkey’s recent earthquakes.

Indeed, licenses to ship hot band to the United States were down 50.34% on the year in January. Meanwhile, Fastmarkets’ fortnightly assessment for steel hot-rolled coil import, ddp Houston stood at $740-800 per short ton ($37-40 per hundredweight) on Wednesday February 1, up by 5.48% from $700-760 per short ton two weeks earlier and essentially on-par with domestic prices.

Ongoing price increases in other countries, as well as a need to fill their own domestic orders, are likely to prevent competitive imports from resurfacing for the foreseeable future, according to the trader source.

If imports do remain scarce, it may cause Southern prices to rise, according to a third distributor source.

“The mills have almost trained the buyers to just accept increases, and [the market] is busy, so I don’t know how long buyers will be able to wait on the sidelines,” he said. “We can’t necessarily starve the mills — there are no imports coming in, and we relied a lot on [the Houston import market] before.”

However, occasional import deals can still be found, and more customers may seek them out if domestic mills continue to try to drive prices up at the recent pace, according to the first distributor source.

“I think imports will be able to compete,” he said. “There’s more domestic [steel available] today than ever, but the relationships [in the South] with foreign mills are still a very strong part of the market.”

Even offers that didn’t seem like good deals a few weeks ago “now sound more appealing,” he continued. “If the mills continue on this path, it reopens the conversation to try to make one of those deals work.”