Does 2018 Bode Well for US Steel Prices?

Steel prices are the major driver of steelmakers’ earnings and revenues. So it’s important for steel investors and Cleveland-Cliffs (CLF) investors to track the trend in steel prices. Steel prices for US steelmakers (SLX) in 2017 have mostly been rangebound—in sharp contrast to the volatility in prices over the last few years. Prices rose to a high of $660 per ton in March before falling to $580 per ton in June. In the second half of 2017, prices have been slight weakness.

US steel companies, including AK Steel (AKS), kept on pushing for price hikes to arrest the fall in prices. In the last couple of months, we’ve seen three rounds of price hikes from US steel mills. While the previous two rounds of price hikes have had a limited impact, the latest hike has seen some momentum building in the HRC (hot-rolled coil) space. As per Metal Bulletin, spot HRC prices are ~$620 per ton, while they were close to $590 per ton at the beginning of November.

In 3Q17, steel scrap prices remained strong. Usually, stable steel scrap prices support US steel prices (X)(MT). In the past, US steel prices have declined following steel scrap prices as buyers negotiate competitive prices amid falling scrap prices. On the other hand, US steel mills are in a better position to negotiate higher steel prices in times of higher steel scrap prices. The current stable scrap prices along with moderate spreads between US and international HRC prices should support steel prices.

Moreover, we are heading into a seasonally stronger first quarter, which should see the building of momentum in US steel prices.