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Have US Steel Prices Peaked?

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US steel prices

We saw significant volatility in steel prices in 2016. While prices fell to multiyear lows in January 2016, we saw a sharp recovery thereafter, mainly due to the impact of trade cases. However, steel prices gave away most of their 1H16 gains in 3Q16 on rising spreads between US and international prices and the price arbitrage for US buyers that came as a result.

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Prices rallied

The graph above shows the movement in spot HRC (hot rolled coil) and CRC (cold rolled coil) as estimated by Metal Bulletin. As you can see, steel prices have rallied handsomely in the last couple of months. Spot HRC prices are now quoted in the ballpark of $630 per short ton, while spot CRC prices are hovering near $840 per short ton.

The CRC-HRC spread stands at $210 per short ton. Although the spread is high, gauging by historical standards, it’s been staying near $200 per short ton.

Have prices peaked?

After the steep increase in November and December, flat rolled steel prices have mainly moved sideways in 2017. We should remember that steel companies like U.S. Steel (X), ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS) have earnings that are sensitive to steel prices (XME).

The key question now could be: Have US steel prices peaked, or is there potential for steel prices to rise higher than these levels? To answer this question, we’ll have to look at the underlying demand-supply dynamics as well as the raw material pricing environment.

Notably, higher raw material prices have been a key driver of steel prices in the past couple of months. In the next part, we’ll analyze the recent trend in raw material prices.

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