Dec 21, 2022
Viewpoint: Spot market shift spells steel volatility
2023-01-05
A greater shift toward the spot market by most US steel buyers is likely to increase price volatility in 2023.
Service centers spent much of 2022 dealing with falling US flat steel prices that more than halved and forced many to sell products below the prices they paid. Since the beginning of 2022 the Argus US Midwest hot rolled coil (HRC) Midwest assessment has plunged by 57pc to $679/short ton (st) on 13 December, falling for all but 12 weeks of the year. Some customers also did not take all of their contractually allocated tons, forcing service centers to find other buyers for those coils, which generally had to be sold at a discount.
In response, many service centers have reduced their contract commitments with steel mills for 2023 by 10-30pc in an attempt to reduce their risk of holding high-priced steel and being forced to sell it at lower prices. Others are also reducing the amount committed for downstream customers who did not meet their contract obligations.
Some larger service centers that typically have limited their spot market exposure to single digits are increasing their spot volumes to double digits as they seek greater visibility into spot pricing, which generally sets contract prices, and to mitigate their risks.
The increased spot market exposure could lead to more volatility if service centers find themselves short, forcing them to enter the market in a more unpredictable manner.
The situation is seen as unfavorable for steel mills, which generally like to have more production on contracts because it allows them to run similar material at the same time, increasing efficiency by reducing the amount of time the mill has to changeover and maintain equipment.
By Rye Druzin
Source: Argus
