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Why Spot HRC Steel Prices Are Losing Momentum

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Mar. 2 2016, Updated 3:06 p.m. ET

US spot steel prices

Last year, US spot steel prices fell to decade lows in line with the weakness in other commodities (DBC). This prompted steelmakers including Nucor (NUE), AK Steel (AKS), and Steel Dynamics (STLD) to cut their spot sales in 4Q15. However, spot steel prices started to recover towards the end of 2015.

The graph above shows the spot hot rolled coil (or HRC) prices as estimated by the Metal Bulletin. Platts also has similar estimates for spot HRC prices. HRC prices have been steady in the ballpark of $400 per short ton for most of 2016.

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Price increases

Steel companies announced increases in their base selling prices towards the end of 2015, which boosted spot steel prices. Interestingly, in mid-2015, steel companies including AK Steel (AKS), Nucor (NUE), and ArcelorMittal (MT) hiked prices for some of their steel products. This had some impact on US (DIA) spot steel prices, which inched up a bit. However, spot steel prices started drifting lower, as you can see in the above graph.

Analyst estimates

Bank of America expects spot HRC prices to average $455 per short ton in 2016. The current spot prices are still 20% below what Bank of America is projecting. But will spot steel prices be able to regain the lost momentum? More importantly, if spot steel prices don’t rise from these levels, what impact could it have on steel companies? We’ll explore these aspects in the coming parts of this series.

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