Mar 12, 2021
Steel mills in driver's seat a year after Covid hit US
2021-05-05
A year after one of the sharpest production contractions in the US steel industry, domestic flat-rolled mills are reaping the benefits of historically high finished steel prices, tight supply and record scrap margins.
US steel production and mill utilization have remained below year-prior levels for nearly all of last year because of Covid-19-related drops in demand, keeping spot and contract steel supply limited amid higher demand.
Utilization rates were at 77.4pc for the week ending 6 March, on par with the prior year for the first time since the week ending 29 February 2020, according to data from the American Iron and Steel Institute (AISI). Prior to the Covid-19 pandemic, US steel mills were running steadily above 80pc utilization.
This market dynamic has led prices to surge to and remain at record levels, with the Argus US hot-rolled coil (HRC) spot assessment rising to $1,280/short ton (st) ex-works Midwest on 9 March. Many market participants have found difficulty getting quotes from mills for spot tons, with many relying on contracted volumes and unwilling to book any spot tonnage to build inventory.
The price is a far cry from the low of $450/st recorded on 11 August 2020 as the US economy worked through Covid 19-related economic shutdowns and US steelmakers idled [nearly 18mn short tons (st)/yr](st) of blast furnace production between March and May. Electric arc furnace (EAF) minimills also cut their production rates, but not to the same extent.
Prices still rising
Few knew how the pandemic economy would unfold, but even fewer could have foretold the meteoric climb in prices with the peak yet to be found.
Margins between raw material costs like scrap are at record levels, with the spread between #1 busheling scrap delivered US Midwest mills and HRC selling prices at $777.77/st, more than double where it was a year ago. EAF steelmaker Nucor expects to post record profits of more than $900mn in the first quarter, buoyed by the spread between scrap and finished steel.
Supply has been unable to keep up with demand, which has been driven by a stronger than expected ramp in vehicle production after months of lost production.
Mills have repeatedly pushed up prices since August 2020. Spot prices have reached record levels, while a lack of supply has left many service centers with depleted inventories as consumers ask for even more tons.
Globally, steel prices have remained elevated and few US buyers have been interested in imported tons, with the fear of a collapse in prices and high upfront costs keeping many on the sidelines of the import market.
In 2020, hot-rolled sheet imports totaled 1.47mn metric tons (t) (1.62mn st), down by 14pc from 2019. In January, hot-rolled sheet imports totaled 121,000t, down by 23pc compared to the same period of 2020.
Until supply expands or demand softens, steel mills seem determined to keep prices at prevailing levels.
Some supply has come online, but impact has not been immediate with Arkansas-based EAF steelmaker Big River Steel still ramping up its 1.65mn st/yr flat-rolled expansion, and JSW Steel USA turning on its new 1.65mn st/yr EAF at its Mingo Junction, Ohio, mill this week.
Farther out, Steel Dynamics (SDI) is slated to turn on its greenfield 3mn st/yr flat-rolled mill in Sinton, Texas, in mid-2021, while Nucor's Gallatin mill is expected to complete its 1.4mn st/yr expansion later in 2021.
By Rye Druzin
Source: Argus
