Thu,Mar10, 2011 10:22 By Platts
The range of deals assessed by Platts for US-made HRC fell within a wider spectrum of $850-880/st, resulting in a higher midpoint of $865/st ex-works Indiana, with lead times reported at four-to-six weeks by active buyers.
Lead times for cold-rolled coil were two to three weeks longer at most mills, sources said, and the CRC price reached a midpoint of $970/st ex-works Indiana.
"Several mills are starting to look at May," said a major Chicago-based buyer, "and one reason is because ArcelorMittal has very little spot availability for April." He reasoned that ArcelorMittal's contract business has been strong thanks to automotive, leaving fewer tons for the spot market.
Auto sales, inventory and production in the US all look like they will support steel demand, according to Josh Spoores, chief analyst at Ohio-based Steel Reality.
"Production [automotive] has increased and should continue to increase," Spoores notes. One note of caution is for light-weight trucks. He explained that year-to-date truck sales are 29% higher than in 2010 "and the current price surge of gasoline may start to slow truck sales going forward."
Spoores maintained Wednesday that the leading steel indicators continue to show firming demand from manufacturing in general and even construction.
"Construction is now driven by seasonal pressures, though the impact has largely been accounted for," said Spoores. "Without solid gains to come, construction will likely revert to neutral over the next month." He added that manufacturing is generally strong with some leading indicators pointing toward the positive.
He sees supply-side pressures, however, as a negative and believes the inventory cycle is poised to slow.
KEY WILL BE INVENTORY BUILDING...OR NOT: ANALYSTS
"Inventory building has been masquerading as demand," Spoores said. "Prices have increased rapidly, while this source of demand is set to slow. In price cycles of the past, when inventory building slows, prices fall regardless of other demand."
But the analysts at Cleveland Research provided an opposing perspective in a Wednesday report: "Steel inventories remain depleted throughout most steel channels. The distributors are holding minimal inventories [about 8 million st] ... Assuming the consumption environment is getting better, there will be a push for distributors to catch up on the inventory side, compounding the upside to mill volumes in 2H11."
Cleveland Research maintains that domestic steel mills and distributors could see more upside beyond the normal seasonal trading.
"April could represent a new period for higher steel prices, at least until the new supply comes into focus," Cleveland Research said. The analysts' steel industry macro-model assumes 7-8% consumption growth this year, meaning "there may be upside to our 93 million [short] tons demand outlook."
Still, their model uses an average 2011 spot-market price for hot-rolled coil of $730-740/st, which they note "is below the existing transaction values. This is based on an average scrap cost of $425 per ton, which is also below the current price point."
Since January 3, the Platts assessment for US-made hot-rolled coil has averaged $792/st ex-works Indiana -- so future spot deals would have to move much lower if they are to align with the Cleveland Research forecast.
Spoores seems to think the pricing peak is closer.
"Current indicators are calling for a likely price peak and short, but swift decline, before further gains are seen later this year," he said.