US steel prices
In our annual steel industry overview for 2014, we noted that steel prices in the United States could come down in the first half of 2015. This was led by a variety of factors, including a decline in global steel prices and the relatively higher steel prices in the US (SPY). This made the US an attractive import destination for countries like China and Korea (EWY).
Where are steel prices headed?
The above chart shows the trend in the spot US HRC (Hot Rolled Coil) price as appraised by the Metal Bulletin. Please note that there are several grades of steel. However, analysts see the HRC price as a benchmark for other steel products.
As you can see, spot steel prices have inched up a bit after hitting their low in May. If the US steel demand stays strong and imports decline further, as they did in May, spot steel prices could see further upward movement.
Steel companies like AK Steel (AKS) and US Steel (X) make a major portion of their shipments to contract customers. These contracts generally have fixed prices, which are negotiated between steel companies and the end buyers. As new contracts come up for negotiation this year, they are likely to be signed at lower prices, looking at the sharp decline in spot steel prices. This could hurt steel companies in the coming few quarters.
While spot steel prices in the US seem to have stabilized, the same cannot be said about steel prices in China, as Chinese steel prices continue to drift lower. Is a bottom in China’s beleaguered steel sector around the corner? We’ll explore this in the next part.