In the previous part, we discussed the factors that helped US steel prices in 1H16. Now, we’ll explore whether these factors could continue to support US steel prices in the coming months. Let’s start by looking at trade cases. They have been the biggest driver of flat-rolled steel prices this year.
Imports have fallen
US steel imports have fallen 31% YoY (year-over-year) in the first five months of 2016. Fewer imports have given US-based steel producers (XME) pricing power—at least in the flat-rolled space. Capitalizing on the trade duties, steel companies like AK Steel (AKS), ArcelorMittal (MT), Nucor (NUE), and U.S. Steel Corporation (X) hiked their base selling prices several times this year.
Note that US steel imports started to fall significantly in mid-2015 when US steel companies started to aggressively file trade cases. Since May 2015, US steel imports have fallen by an average of 26% YoY each month. However, the rate of decline in May is the lowest since August 2015. In absolute terms, steel imports in May were the highest since October 2015.
Cause of concern?
May steel imports were 12% above April’s final import figure. However, the increase compared to April shouldn’t be a big concern for investors. The monthly increase has mainly been due to higher imports of blooms, billets, and slabs which are semi-processed steel products.
However, what’s concerning is the fact that hot-rolled coil imports increased on a monthly basis for two consecutive months. Due to the trade cases, US steel buyers weren’t able to tap their existing trading partners for steel imports. It’s a time lag before new supply lines are developed. However, it seems that US steel buyers have started to find alternate avenues to meet their steel needs.
In the next part of the series, we’ll see why import pressure could impact US steelmakers in the second half of the year.