CHICAGO — Spot prices for hot-rolled coil will close 2015 at $570 per ton ($28.50 per hundredweight) thanks to inventory destocking, solid underlying demand and new trade laws, according to an industry analyst.
That’s more than $100 per ton ($5 per cwt) above $465 per ton ($23.25 per cwt) today and only 5 percent below $600 per ton ($30 per cwt) at the start of the year, according to AMM records.
Prices could be driven even higher if additional trade petitions are filed or laws enacted that would make it easier for steelmakers to file trade cases and for trade officials to enforce existing rules, New York-based Morgan Stanley Equity Research analyst Evan Kurtz told AMM in an interview June 23.
“The legislation is the more interesting of the two. Trade cases are great, but eventually the steel finds another way to get here. Trade legislation changes the way the game is played,” Kurtz said.
U.S. steelmakers have filed a trade petition against coated steel from China, Italy, India, South Korea and Taiwan (amm.com, June 3), and cases against hot-rolled and cold-rolled steel are said to be in the works (amm.com, June 9).
Trade petitions traditionally have taken about three years for steelmakers to prepare, something that could be reduced to a matter of months should new policies—some attached to Trade Promotion Authority (TPA) legislation—clarify the International Trade Commission’s “nebulous” definition of injury, Kurtz said. With clearer rules, “as soon as (domestic mills) see a pickup in a particular product from a particular country they could rapid-fire a trade case and shut it down.”
Additional measures could impose stiffer fines on those caught evading duties, Kurtz said, making it a far riskier proposition to fudge country-of-origin documents or to try to avoid tariffs by changing how a product is classified.
Such new trade policies now look set to clear Congress and make it to President Obama’s desk along with TPA authorization, Kurtz said. Combined with trade cases, they “may have a similar impact to (Section) 201” safeguard measures (amm.com, May 15).
Hot-rolled coil prices are already creeping up as imports slow and inventories are whittled down, not only at service centers but across the entire supply chain, amid solid automotive demand and improving construction activity, Kurtz said. "We’re getting to the last of the destocking, and there is going to be a moment when all of a sudden inventories get lean and everyone suddenly jumps back in at once. There will be some serious traction in the third quarter, and then (prices) will really start to move again.”
Domestic steel prices are currently too low, Kurtz said, and could probably be justified at $520 to $530 per ton ($26 to $26.50 per cwt) based on the cost of production in Asia—$370 to $380 per ton ($18.50 to $19 per cwt)—plus $150 per ton ($7.50 per cwt) for freight to the Midwest and profits for traders and overseas suppliers.
“But we tend to overshoot and undershoot,” Kurtz said. “We’ll get to the point where it makes sense to start buying imports again, but it takes imports five months to show up so we’ve got five to 10 months of an upward price cycle in front of us.”
Michael Cowden June 24, 2015 11:20AM
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