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How Far Can U.S. Steel Raise Its Base Selling Prices?

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Selling prices

According to Steel Market Update, U.S. Steel (X) announced a $30 increase in flat-rolled steel products. Some of the other producers including AK Steel (AKS) have also followed suit. In this part, we’ll explore how far U.S. Steel and other steelmakers like ArcelorMittal (MT) and Nucor (NUE) can raise flat steel prices.

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Steel prices fell

According to the data compiled by Metal Bulletin, spot HRC (hot-rolled coil) prices are currently quoted in the ballpark of $470 per ton, while spot CRC (cold-rolled coil) is quoted at $690 per ton levels. We should remember that spot HRC prices rose from $380 per short ton to $640 per short ton between January 2016 and June 2016. Spot CRC prices rose from $520 per short ton to $840 per short ton over the same period. However, steel prices have pared some of their 1H16 gains. Among other factors, subdued demand in the US market (MDY) and higher spreads between US and international prices pushed US steel prices lower in the third quarter.

Outlook

While flat steel prices seem to have found their bottom, at least in the HRC space, steelmakers’ ability to raise prices much could be limited. However, we could see some increase in steel prices as lead times extend into 1Q17. We should note that some fresh steel supply is expected from Big River Steel in 1Q17. It would increase the steel supply in the US market. Also, US steel buyers would be watchful of the short squeeze they faced in 1Q16. The capitulation sort of situation that steel buyers faced in 1Q16 looks like a bleak possibility.

In the next part, we’ll look at the trend in Chinese steel prices.

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