Dec 16 2022
The US steel sheet market will look to establish new footing in 2023 after prices took a nosedive in the second half of 2022. However, concerns of a weaker economy, sufficient inventory levels and uncertain demand outlooks are weighing on the market's potential upside for next year.
The Platts TSI US hot-rolled coil (HRC) index reached a record level of nearly $2,000/st in the third quarter of 2021 and a 2022 year-to-date high of $1,500/st in April, according to data from S&P Global Commodity Insights. Prices then declined steeply until bottoming out at $620/st in November. Market participants have noted slowing demand that could extend well into 2023 with a cooling economy linked to inflationary pressures, interest rate hikes and other factors.
In response to softer market conditions and encouraged by shorter steel mill lead times, steel buyers have said they are now opting to stay on the sidelines while they work down well-stocked inventories and control costs. Some sources are also planning to rely more heavily on contractual supply in 2023, rather than spot market sales.
Most major North American steel producers in late November began announcing increases to their base offer prices for steel sheet in an attempt to reverse downward price trends. US HRC prices have since climbed back up to over $650/st in December, but industry sources are unsure whether the mill offers will be fully accepted by the market going into 2023.
One US Midwest service center source said the mill increases and higher scrap prices could support a rebound in HRC prices, at least temporarily.
"I'm not sure how long it lasts, but in the near term, it looks to be in favor of the mills getting prices up," the source added.
However, a Canadian buy-side source said he hadn't seen a real change in demand since the latest round of price increases. "I am still sort of in the camp of let's give it a bit and let it play out," the source said.
Steel producers could be eying $700/st as a new price floor for HRC. In a more aggressive move, steelmaker Cleveland-Cliffs said Dec. 13 it would set a minimum base price for HRC at $750/st. Cliffs is the largest steel sheet producer by volume in the US.
By Dec. 15, the Platts HRC assessment reached $690/st. Despite the uptick in prices, a trader said demand remained subdued.
"The price has stabilized, but no one is rushing to buy from US mills and definitely not imports," he said on the same day as the Cliffs announcement.
Another trader said prices could hold at this higher level if steel mill capacity utilization stays lower compared with historical levels. The source also noted difficulty in booking import volumes.
S&P Global analysts forecast monthly average US HRC prices to bounce between $650/st and $700/st for most of 2023, possibly breaching that range to reach about $720/st in December.
"At this stage, we're looking at an average of $663/st for 2023 but acknowledge there could be downside to this price level if recessionary conditions bite," S&P Global said in its most recent forecast released in November. "US steel prices have been on such a rollercoaster over the past three years that it is difficult to know if pre-COVID or pre-Ukraine invasion prices are closer to a real price level."
Monthly contracts for US HRC prices on the London Metal Exchange are currently holding at $707.50/st for each month in 2023 starting in February, as of Dec. 15.
The World Steel Association, or worldsteel, offered a somewhat favorable view of US steel demand for 2023 in its most recent outlook released in October, saying it did not expect market contraction with positive momentum in the automotive sector, spending from the country's new infrastructure law and rising energy sector investment.
However, potential risks to US steel demand in 2023 include softer manufacturing activity, a shift in consumer spending from goods to services, a slowdown from the recent housing boom and a delayed recovery in the non-residential construction sector, the association added.
With an uncertain demand outlook, the steel market will also monitor whether the slate of new steel sheet capacity ramping up from electric arc furnaces in 2023 will pressure HRC prices.
Meanwhile, only two major mills will start 2023 with some capacity offline.