uploads/2017/11/part-7-scrap-1.png

Could Stable Scrap Prices Lift US Steel Prices?

By

Updated

US steel prices

As we noted previously, spot HRC (hot roll coil) prices have seen some traction this month after price hike announcements by steel companies, including AK Steel (AKS). Along with the demand and supply dynamics, raw material prices also tend to impact steel prices. While globally, steel prices generally follow iron ore prices (CLF), US steel prices and steel scrap prices tend to move in tandem with each other.

Article continues below advertisement

Scrap prices

Steel scrap prices were strong in 3Q17 while steel prices didn’t keep up. As a result, companies like Nucor (NUE) and Steel Dynamics (STLD) that rely mainly on steel scrap reported margin compression in the quarter. However, we saw downward pressure in steel scrap prices in October. Prices have moved largely sideways this month.

Impact on US steel prices

Stable steel scrap prices support US steel prices (X)(MT). In the past, US steel prices have followed steel scrap prices lower as buyers negotiate competitive prices amid falling scrap prices. Conversely, US steel mills are in a better position to negotiate higher steel prices in times of higher steel scrap prices.

A stable steel scrap price environment, coupled with moderate spreads between US and international HRC prices, also supports US steel prices. Plus, as we head toward the seasonally strong first quarter, we could see the momentum continue in US steel prices. Low supply chain inventories also bode well for US steel prices.

In the next part of this series, we’ll study the recent movements in iron ore prices.

Advertisement

More From Market Realist