After a steep rally in the first half of the year, US flat steel prices came under severe pressure in 3Q16. 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.
Steel prices had fallen
However, the rally in US steel prices, which was largely fueled by trade cases, lost pace in 3Q16 and spot HRC prices fell to $470 per short ton. As the spread between US and international steel prices rose to record highs, steel buyers actively scouted for steel from international markets. As a result, we saw an increase in flat rolled steel imports, which negatively impacted US steel prices.
Falling steel prices were a double whammy for steelmakers, especially U.S. Steel (X) and AK Steel (AKS). While their selling prices were going down, both these companies were staring at higher unit costs in the coming quarters on rising coking coal prices. To protect their profitability and reverse the slide in spot steel prices, US steel companies announced an increase in their base selling prices.
However, there were concerns that the price hikes would hold ground in a weak market. In our view, Trump’s election would help build momentum and we could see another few rounds of price hikes by US steel companies like Nucor (NUE) and Steel Dynamics (STLD).
The timing could not have been better for U.S. Steel as we approach a seasonally strong first quarter. Strong seasonal demand, low steel inventories, and the sentimental impact of Trump’s election could help US steel pricing in the near term.
That said, Trump’s impact on US steel industry (XME) is not just sentimental. We’ll discuss this further in the next part of the series.