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How Falling Steel Prices Could Impact US Steelmakers in 4Q16

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Falling steel prices

Steel companies’ earnings are sensitive to changes in steel prices. Last year, steel companies’ earnings were negatively impacted by falling steel prices. However, US steel companies (XLB) received significant pricing power earlier this year as stiff duties were imposed on flat-rolled steel imports.

According to data compiled by Metal Bulletin, spot HRC (hot-rolled coil) prices rose from $380 per short ton to $640 per short ton between January 2016 and June 2016. Spot CRC (cold-rolled coil) prices rose from $520 per short ton to $840 per short ton over the same period.

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Higher selling prices in 2Q16

Steel companies such as U.S. Steel (X), ArcelorMittal (MT), AK Steel (AKS), and Nucor (NUE) reported sequential rises in their 2Q16 steel selling prices due to the surge in spot flat steel prices. You can read Inside Steel Companies’ 2Q16 Earnings and Future Plans to find out more about different steel companies’ 2Q16 average selling prices.

Rally is fading

The rally in steel prices, which was driven mainly by trade cases, is now fading. Spot HRC prices have fallen ~$150 per short ton from their June peak and are currently at $490 per short ton. Spot CRC prices have also fallen ~$130 per short ton from their June peak. Read Analyzing Recent Developments in the Steel Industry to find out more about steel prices and other industry indicators.

Lower spot steel prices could lead to lower pricing for the orders US steel mills book in 4Q16. However, there are several other drivers of steel companies’ average selling prices. We’ll discuss these drivers in the next article.

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