As another year begins, the American steel industry is eyeing some changes that may require a course adjustment or two.
Some trends have emerged, some good, some bad. But the rise in the value of the dollar could be an overriding negative for 2015 business, making steel imports cheaper and exports more expensive.
US steel imports grew in 2014, likely to top 40 million tons for only the second year in the country’s history when the final count is in. But the impact of imports was dampened by US mills continuing to produce at below 80% of their capability, precluding a grossly oversupplied market.
Still, 2014 bellwether hot-rolled coil prices declined from as high as $700 a ton in May to around $600 a ton now due to cheaper imports and rising inventories of both foreign and domestic material, despite steady, if lackluster, demand. If the seasonal pickup in demand does not occur in the first quarter, or is muted, HRC prices could fall below $600/ton, which has become a psychological floor for the industry, according to several market players.
On the cost side, global iron ore prices have fallen nearly 50% and are expected to stay relatively flat. Shredded scrap prices in the US market fell 26% since the start of 2014, but have seen a recent uptick. Platts this week reported that East Coast scrap export prices to Turkey rose by $20/mt in December and US dealers have sold mid-month scrap to domestic mills as high as $30/lt above early-December prices. Nonetheless, domestic scrap is nearly $100/lt cheaper than at this time last year.
Regarding market demand, the auto sector remains strong and surprising strength is being seen in the rebar market due to a rebound in construction activity, cautious purchasing and a tighter supply at the mill level. Rebar is currently selling at a $30/ton premium over mesh-quality wire rod, a comparable but generally higher value product with the premium usually in its favor.
US consumption of rebar likely topped 8 million tons in 2014, up from 7.5 million tons in 2013, according to the Concrete Reinforcing Steel Institute, which expects an 8% climb in 2015 consumption even assuming extremely conservative US government transportation spending.
The pipe and tube market and the portion of the flatrolled steel market that supplies it are expected to be down in early 2015 as a result of the plunge in oil prices. But pipeline infrastructure is still needed in the nation’s shale plays, another bright spot for the steel industry, which also benefits from cheaper natural gas prices that lower mills’ costs as well as those of steel-using manufacturers.
“If it wasn’t for the fracking–and this is scary–the steel industry would be down on its haunches,” one particularly pessimistic steel service center executive told Platts this week regarding shale play drilling. Meanwhile, a sheet steel end user said the price of HRC could fall below the $600/ton floor to $575/ton early in the new year, but he believes any such decline would be short-lived.
Maybe that’s because America itself is on an economic upswing. Manufacturing output is improving and the economy grew at a 5% rate in the third quarter. Common wisdom is that anytime GDP grows more than 3%, the steel sector is a beneficiary. If the world’s other major markets follow suit, steel could be in for a big boost in 2015, especially in the US where prices are already the highest in the world and could be boosted if foreign steel stays home to meet growing domestic market demand.
Zhejiang Yaang Pipe Industry Co., Limited