With respect to trading, 2016 started on a somber note. Most commodity stocks fell steeply on the first trading day of the year as China’s manufacturing PMI (purchasing managers’ index) came in lower than expected. However, 2017 has started on a positive note on better-than-expected manufacturing data from China.
It’s not only China’s positive manufacturing data that’s supporting steelmakers. The demand side of the equation, especially the apparent demand, looks much better as we head into 2017. We should remember that real steel demand is the steel consumed by end users. On the other hand, apparent demand also accounts for changes in inventory. If end buyers decrease their inventory levels, apparent demand falls below real demand and vice versa.
US apparent steel demand fell below real demand in 2015 as steel end buyers and service centers (RS) went about de-stocking their inventory. The service center inventory destocking activity continued into 2016 as well. However, given the low inventory levels, and expectations of higher real demand, we could see some inventory restocking in 2017.
Notably, at the beginning of 2016, US hot rolled coil (or HRC) prices were quoted below $400 per short ton. However, steel prices are at a much higher level as we head into 2017. More price hikes seem to be on their way as is evident in AK Steel’s (AKS) recent price hike announcement. Other steelmakers including U.S. Steel (X), ArcelorMittal (MT), and Nucor (NUE) could also join ranks in raising their base selling prices.
With a positive start to 2017, can the momentum continue throughout the year? We’ll explore this in detail in the coming parts of the series.