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Traders seeking deposits in US to help with surging sheet prices

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Traders seeking deposits in US to help with surging sheet prices

Highlights

US HRC prices at a massive premium to global markets, inviting imports

New options emerge in US HRC import markets

Some traders requesting deposits on imports orders due to surging prices

Market sources have different views about the reason behind that decision

Traders have been asking US buyers for deposits on new import orders to help cover surging sheet prices, according to multiple sources.

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US hot-rolled coil prices were up nearly $1,400/st in just under a year and remain around all-time highs. The record domestic prices have led to more overseas options for buyers but some traders now seek deposits to help with the high costs of steel.

A service center source said the higher prices were a burden on financials and cash flow for traders. He regularly buys imports and said three different traders were now asking for deposits, ranging 15-50%, to place new orders.

"I'm told its due solely to the high cost of steel... They have to put up deposits upward of 50% or more in most cases, and the buyers have to share in that due to cash flow," the service center source added.

Another service center source confirmed they had paid deposits for some of their recent import transactions. "The narrative was the steel has gotten so expensive that they need deposits with credit lines running full," the source said. Still, with domestic prices hovering above $1,800 he suspected the deposits also helped traders minimize exposure against cancellations if domestic prices reverse.

"I do not believe it is for credit line reason but rather for protection against market risk, and traders know this scenario very well," said one trader agreeing with the service center source. "We cannot ask US customers for letters of credit but when market prices fall like a rock at time of arrival, buyers have no problem to cancel the order or ask for a huge discount."

With a deposit on hand, traders would not release the material until they receive a payment for the balance even in a market downturn, according to the trader.

US HRC prices remained at a massive premium to global prices. The daily Platts TSI US HRC price stood at $1,827.75/st on July 21, while the North Europe HRC price was at approximately $1,252/st ex-works Ruhr and HRC FOB Turkey was at $953/st.

US flat-rolled import levels have increased in 2021, hitting their highest level in May since January 2019. Total flat rolled imports were at 935,711 mt in May, according to data from the US Department of Commerce. The data also showed that June license data inched closer to 1 million mt, standing at 975,524 mt as of July 19.

There were HRC offers from at least four separate destinations overseas with prices at $1,580-$1,660/st, depending on destination with November arrival, according to buyers.

Some wondered if deposit requirements would hinder buying activity through the rest of the year, but supply options from domestic mills remain limited.