Steel selling values, in the United States, continue to be among the highest in the world. Nevertheless, local steel manufacturers are struggling to minimise the extent of recent price erosion, across flat and long products. Falling scrap expenditure, weak purchasing activity and an uptick in domestic production contributed to the latest price decline, this month. Hot rolled coil prices are, currently, hovering just above the US$600 per short ton mark. However, the reduced impact of Section 232 legislation has the potential to exacerbate the negative pricing situation further, in the near term.

In mid-May, the US government agreed to eliminate the tariffs on Canada and Mexico – with these countries dropping the reciprocal measures against US-made steel. The introduction of trade barriers had a negative effect on cross-border deals between the countries. This led to a widening price differential between US and Canadian steel values – in particular those for hot rolled coil – with Canadian figures falling at a faster rate than their US counterparts. 

Canadian steel producers, who are heavily reliant on sales to the US market, were finding their access increasingly restricted, due to the trade legislation. In an attempt to plug significant gaps in their production schedules, mills were forced to slash their local offers, to secure orders. The Canadian hot rolled coil market quickly became saturated. Domestic delivery lead times declined to one week, at one stage. 

It is widely anticipated that the removal of the Section 232 tariffs should provide Canadian producers some much-needed breathing space, by giving them the opportunity to close the pricing gap on their US neighbours. The US authorities also relaxed their stance on Turkish imports, by halving the tariff from 50 percent. It is likely that Turkish mills may redirect export volumes, from Europe, to the more lucrative US steel market, as a result.

Many European steel market participants remark that Turkish shipments of hot rolled coil to the continent, increased by more than 50 percent, in the first quarter of 2019, compared with the figure in the preceding year. High import penetration continues, despite existing EC safeguarding measures. Economic growth is stalling in a number of European countries and volatile raw material costs have put a strain on the profitability of regional steelmakers. 

In order to stem further price erosion, ArcelorMittal announced its intention to reduce supply from several of its Central and Eastern European steelmaking facilities. Moreover, we have reports that the company has raised its list price offers by between €30/40 per tonne. The consensus view of the majority of attendees at the recent ‘Made in Steel’ event in Milan, was that the pricing initiative, led by ArcelorMittal and followed by other mills, is likely to minimise the extent of further price deterioration within the region. 

MEPS expects downward movements in global selling figures to continue. However, values are likely to be approaching the bottom of the current cycle. Due to rising mill input costs, MEPS predicts a modest price recovery in late summer/early autumn. Nonetheless, the recent escalation of trade tensions involving the US and China, and continued Brexit uncertainty, will do little to boost consumer confidence, around the world. 

Source: MEPS International Steel Review