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US Steel Prices Face Downward Pressure after a Strong 1H16

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Sep. 19 2016, Updated 12:04 p.m. ET

US steel prices

Steel companies’ earnings are sensitive to changes in steel prices. In recent quarters, steel companies’ earnings have been negatively impacted by falling steel prices.

However, spot steel prices, especially for flat-rolled sheet products, have risen sharply this year. Steel companies including U.S. Steel (X), ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE) reported sequential increases in their 2Q16 steel selling prices due to the surge in spot flat steel prices.

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Flat steel products

The biggest gains in the steel space this year were from flat rolled steel prices where US steel companies managed to get stiff duties imposed on imports from countries including China. Trade protectionism helped steelmakers raise their base selling prices several times this year. The US was turned into a virtual island where steel buyers were left with little option but to buy steel from domestic steel mills despite much lower prices globally.

However, after the spectacular rally in US (DIA) spot steel prices between March and June 2016, we’ve seen some downward pressure on flat rolled steel prices. Spot HRC (hot rolled coil) prices have fallen by ~$100 per short ton from their June peak. According to the data compiled by Metal Bulletin, spot HRC prices are now in the ballpark of $540 per short ton.

Imports pressure

As discussed in the previous part, US steel imports rose to a one-year high in July. Also, we saw a sharp increase in flat steel imports in July. HRC imports rose 48% compared to June. CRC (cold rolled coil) imports rose 7% compared to June. Notably, in absolute terms, July CRC imports are the highest since September 2015.

Meanwhile, while HRC prices have corrected, CRC prices have been holding steady. We’ll discuss this more in the next part of the series.

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