US steel sentiment remains positive with domestic mills in a good position versus imports: survey

The sentiment for flat-rolled steel prices continued to shift higher for February as domestic mills increased offers with buyers maxing their contracts and lead times extending, the most recent S&P Global Commodity Insights US steel market participant survey showed.

In the survey of US producers, distributors, traders and end-users, 100% expected finished prices to remain steady or rise during February, following January where all participants were neutral to bullish, with 45.7% expecting prices to increase as some domestic mills looked to shift from integrated mill output and focus on more electric arc furnace and lower cost metallics production along with utilization rates starting to move up.

Although US Steel recently brought back online their Mon Valley No. 3 furnace as they were seeing increased orders from construction converters and service center customers as well as appliance manufacturers.

With the recent round of sheet price increases, most mills were seeking $850/st for hot-rolled with tradable values seen moving slightly higher as mills have seen lead times move out until March/April, with some still needing repairs to boost capacity or expansion.

Flat-rolled mills were among the most bullish on prices for February, seeing increases of more than 5% possible as they have been able to raise prices with no competition from imports.

The upside for flat steel remains limited according to market participants, given the environment of high capacity in the US, with many expecting a pullback in the second quarter.

Raw materials traders were seeing a "short cycle" because of seasonality and restocking of steel, with more orders and increased prices on the way.

Scrap prices were again in focus, with 65.7% of participants expecting prices to increase slightly, and in total, 92.3% expect prices steady or rising during the month.

Some scrap traders felt that the upside for steel prices was limited and some of the increases could be given back in the spring.

As trade was underway for February delivered scrap, the first mill bids came in at $20/lt higher for prime and obsolete grades in the Midwest as demand for exports to Turkey has remained strong in January as scrap prices have increased by $26.50/mt to start the year.

Mills will look to rising scrap prices to lend some support to finished prices and try and hold margins, but seasonality has set in for demand of long products as mills haven't been able to adjust higher in that segment.

Some respondents remained neutral, with 54.3% seeing prices flat to down slightly on the month, with most of those longs market participants.

Inventories still the focus of buyers

Views on inventory changes again remained mixed as some flat steel and long products distributors were continuing to see inventories draw while others were expecting inventories to build.

The majority of participants expect inventories to remain steady or decrease month on month, with 74.3% of those expecting stable or slightly drawing inventories. On the long product side, 75% of those were expecting inventories to tighten or remain steady with 69.2% on the flat steel side expecting the same. On the whole, 57.1% of all participants expect inventories unchanged in February compared with 50% in January but 17.1% of all participants were also expecting inventories to decline in the coming month.

Around 25.6% of all those surveyed expected inventories to increase in February, which comprised a mix of flats and longs users.

The Platts TSI US hot-rolled coil assessment rose in January as mills looked to support spot prices as they have been successful in adding new annual contracts over the past couple of weeks, even from automakers, which have led to less material available for spot sales, rising by $110/st from the start of January, and last assessed at $810/st Feb. 6, according to S&P Global data, as demand outlooks remained mixed across steel products.

Wire rod buyers said that mills' order books weren't yet where they would like to see them, but have improved as users have been been able to bring inventories down to more-comfortable levels. Rebar buyers across most of the US were seeing a seasonal slowdown, with availability "pretty good" for most products as expected, but seeing orders improving as demand hasn't warranted additional tonnage, especially with shorter domestic lead times.

Some longs market participants were expecting possible increases in April if scrap prices continue to rise, but others felt that current prices were supportive for the domestic mills as most imports were priced out of the market.

Rod and rebar mills continued to monitor imports to remain competitive, as foreign offers remain limited and as higher energy and scrap prices have supported foreign prices, especially in Turkey.

Flat steel production expect to rise in February

Finished steel production expectations remained fairly steady, as 57.1% of participants expected it to remain flat, mostly unchanged from January, with 34.3% expecting increases and 8.6% expecting production decreases. Distributors of longs and some flats were seeing production lower. Raw materials traders and other flats distributors and mills were seeing production climb slightly in February.

Mill margins in the US remained under pressure, with rising input costs and the continued push to utilize more scrap in furnaces and incorporate more obsolete grades in the mix. Mills have been trying to support margins, but as spot prices increased for some products, scrap prices could see continued support through Q1 as collections will be down during winter months in a fairly tight market, especially given the demand for exports.

Buyers still remain focused on inventories and cost controls across all products to start the year, which has limited large spot market purchases with shorter lead times from the domestic mills have allowed versus longer lead times for imports. Flats mills have moved lead times out as they have taken on new annual contracts to start the year and buyers have been maxing their contracts and tried to remain out of the spot market, which was demanding higher prices than those contracts that were typically seeing around 5% discounts.

Mills in the Southern and Southwest were able to take advantage of production shutdowns in Mexico, but some faced supply-chain issues for parts needed to increase production. Other mills in the Midwest that were undergoing expansion were in the situation.

Long mills have tried to remain competitive with import offers as downstream demand from new projects has not warranted additional spot buys or bookings of larger imports along with the rising costs of financing material and holding large inventories. Market participants have continued to see increased bidding activity in the Southeast, but not many new awards yet.