Bullish sentiment continues in the US steel market on supply concerns: survey

Sentiment for finished steel prices has continued to improve in the US in April, with US steelmakers announcing price increases as raw material prices continue to rise following Russia's invasion of Ukraine, along with rising transportation and fuel costs, according to the latest S&P Global Commodity Insights US steel market participant survey.

In the survey of US producers, distributors, traders, and end-customers, 91% of those surveyed expected prices to rise, compared with 59% in March, with 40% of those bullish participants expecting a rise of more than 5% in finished steel prices, and none anticipating prices to fall during April.

Most respondents attributed the expected rise in prices to increasing scrap prices, and the invasion of Ukraine changing the supply chain, demand was also expected to remain strong in the near term. Service centers have been more actively inquiring in the spot but higher mill offer levels have yet to be tested.

"There was an initial shock to the market and we should start to see things temper over the next couple of weeks," a flats distributor said.

Steel flats and longs market participants are starting to see tightening inventories month on month.

The daily TSI US hot-rolled coil assessment trended higher in March, rising by $400/st since the start of the month, according to Platts assessment from S&P Global, snapping five consecutive months of downturns.

This comes as tensions in the Black Sea region have sent scrap prices soaring on import disruptions of pig iron and other scrap grades by other countries. This has pushed shredded and prime prices in the Midwest by $135/lt and $187.50/lt, respectively, during the March buy week.

Early indications for April are up $50-$100/lt for shredded and up $100-$200/lt for primes as these widened ranges have reflected flow uncertainties.

Finished steel production is expected to remain steady again this month, as 64% of participants expected it to remain flat and 32% expected a rise. Mills and distributors of flats were mainly seeing production steady to slightly higher.

Around 96% of those surveyed expected inventories to shrink or remain level.

Longs distributors and traders continued to see inventories sharply declining, as supply has been extremely tight, especially in Florida, where mills have announced price and freight rate increases. Other distributors throughout the US are expecting another price increase to come in early April along with rising fuel costs and thus a higher delivered price.

"Huge increases, going to get very ugly very soon," a longs distributor said.

Pointing at the magnitude of mill increases has put many projects "underwater" and could start to price out developers causing them to cancel projects despite selling at all-time high prices per square foot.

Long steel market participants were bullish again for April, expecting tightening domestic supply, production issues, and higher input costs.

"Russia's invasion of Ukraine will change and tighten steel and steelmaking material," a second longs distributor said.

Scrap prices were again in focus, with 55% of participants expecting prices to rise 5% or more during the April buy week.

Mill margins in the US were under pressure to start the year with rising input costs and the continued push to utilize more scrap in furnaces and incorporate more obsolete grades in the mix, but mills have been able to raise their offers as the import arbitrage has started to disappear, thus supporting recent margins.