US steel plate market eyes three trends: 2023 preview
The outlook for the steel plate industry in the United States is cloudy for 2023 due to three conflicting factors: more incoming supply, expectations for stronger demand and the decoupling of the plate market from hot-rolled coil prices
Demand for domestic plate is expected to be strong in 2023, which some sources say will enable mills to hold prices at or near current levels. However, increasing production capacity and the wide spread between plate and hot-rolled coil prices lead others to believe prices will trend lower in the coming year.
Fastmarkets’ assessment of steel cut-to-length plate carbon grade, fob mill US was $71 per hundredweight ($1,420 per short ton) on December 20, down 1.39% from $72 per cwt on December 13 and down 10.13% from $79 per cwt one month earlier.
This is the lowest level for plate since it was assessed at $71 per cwt on June 11, 2021, midway through the pandemic surge from a low of $25 per cwt on August 28, 2020 to a peak of $95 per cwt on April 8, 2022.
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Demand for plate remained weak for much of the second half of 2022. Many service centers avoided, and continue to avoid, excessive inventories and instead bought only as needed or for specific projects. Market participants cited several reasons for avoiding plate, including the historically high price and spread above hot-rolled coil prices, short lead times of two to four weeks and widespread worry about a potential downward correction in prices.
“Personally, I can’t see much outside of a continual slow decline for plate,” an East Coast distributor said. “I expect as we go through [the first half of 2023], we’ll see prices going down and inventories staying lean. Then again, who knows? Things were supposed to fall apart in March, but then we had Ukraine… All it takes is one goofy scenario, or one monkey wrench.”
Plate capacity is set to expand in 2023
Nucor’s plate mill in Brandenburg, Kentucky, with a capacity of 1.2 million tons per year, is the largest US plate project coming online. It will join Nucor’s three existing plate mills in Longview, Texas; Tuscaloosa, Alabama; and Hertford County, North Carolina, bringing Nucor’s total plate capacity to an estimated 4.1 million tons per year.
The $1.7 billion Brandenburg mill, which broke ground in October 2020, rolled out its first plate on December 30, 2022, and will be one of only a few mills in the world capable of supplying some of the critical steel components needed for offshore wind farms, according to Nucor. Final commissioning of the mill and first shipments to customers will take place in the first quarter of 2023.
In the second half of 2023, JSW Steel is expected to complete the second and final phase of its $260-million modernization project at its Baytown, Texas, plate mill, which has a capacity of 1.2 million tonnes per year (1.32 million short tons). Capacity utilization rates at the Baytown plate mill stood at 36% in the three months that ended September 30.
Sault Ste Marie, Ontario-based Algoma Steel will complete its own round of plate mill modernizations in 2023, originally set to be completed in June 2022. The modernization will allow Algoma to increase output and produce plate of a greater thickness and better surface quality at the facility, which is the only producer of plate in Canada. Algoma did not specify how much the project would increase output.
Strong demand will be led by infrastructure, renewables
Despite fears of a coming recession in the US, most market participants reported strong signs for plate consumption in 2023 led by demand from the energy sector. Non-residential construction projects, such as data centers and semiconductor plants, are also expected to boost steel consumption.
“I think prices will continue to be strong relative to sheet… Residential [construction starts are] expected to be down next year, but other sectors are expected to be up,” a West Coast buyer said, pointing to analyst forecasts. “Plate consumption should be strong in 2023.”
Plate consumption should be strong in 2023
Another East Coast distributor said: “What will help plate pricing is demand for wind towers and infrastructure... In [the second half of 2023], we’ll see meaningful projects [such as] oil and gas bouncing back. In general, we’re seeing American manufacturers invest in new facilities, and domestic reshoring of manufacturing activities supportive of steel.”
An estimated 7 million tons of steel or more will be needed to meet 2030 offshore wind construction targets set by the US Departments of Interior, Energy and Commerce. Offshore wind projects can require specialty steel plate up to six inches thick.
Legislation passed in 2022 is expected to be a boon for steel consumption in the coming year. The Inflation Reduction Act allocated $369 billion for energy security and climate change subsidies, credits and projects, including outlays for wind turbines, battery plants and solar panels. The CHIPS and Science Act will pour $280 billion into the high-tech manufacturing and research sector, including $200 billion for scientific research and development and $52.7 billion for semiconductor manufacturing. The $1.2 trillion Infrastructure Investment and Jobs act passed in 2021 is also expected to boost demand in 2023, funding $110 billion in repairs for roads and bridges, $39 billion in transit modernization, $17 billion in port infrastructure repairs, and $25 billion in airport repairs over the five years after it was enacted.
Steel executives say much of the spending from the three laws will begin to be felt in 2023 and beyond, when public spending and material consumption begin in earnest.
The plate-HRC price spread may have decoupled
Market participants disagreed on whether the spread between plate and hot-rolled coil will narrow significantly in 2023 in line with historical trends. Some increasingly believe that plate and hot-rolled coil prices may have decoupled for the foreseeable future.
The spread between plate and hot-rolled coil prices narrowed to $35.52 per cwt on December 20, following the drop in plate prices and the rise in HRC prices. The spread reached an all-time high of $47.01 per cwt on August 23, 2022 since Fastmarkets began tracking the market in 1999.
“I don’t know if this spread is a new norm, but the old spread is out the door right now. There’s more capacity in hot-rolled coil than plate, even though we have a new mill coming on,” the first East Coast distributor said, referring to Nucor Brandenburg. He added that some of his customers have been substituting thicker grades of HRC for plate to save on cost.
Several service center sources said they saw plate buyers switch to HRC when possible in 2022 due to the high spread, though most agreed that the overall effect on demand has been small.
Historically, plate sold at a premium to HRC. From 2010-2020, Fastmarkets’ plate assessment exceeded HRC prices by an average of $6.67 per cwt (21.01%).
Between September 11, 2020, and November 19, 2021, when both plate and HRC rose to all-time highs, the spread between the two products inverted. At its peak on July 16, 2021, HRC sold at a $15.65 per cwt premium to plate on a weekly basis.
HRC prices have since cooled closer to historic levels while plate prices remain elevated, leaving the spread between the products much higher than in the past decade.
“Plate is definitely trending down quickly and has probably been overinflated for a long time now. It used to trail [hot-rolled coil] by about six months, but has held up much longer this time,” a midwestern distributor said.
Plate is definitely trending down quickly and has probably been overinflated for a long time now
“I think the decoupling is going to stay the way it is,” a third East Coast distributor said. “If the mills are disciplined, they’re going to be able to hold that… I think it will stay that way for 2023.”