The US hot-rolled coil (HRC) and cut-to-length steel plate markets are currently sitting in a very unusual position due to developments since mid-year.
The normal premium for commodity A36 plate over HRC, a commodity sheet steel product, has not just shrunk but rather disappeared and plate is now selling at a discount to HRC.
This current pricing landscape is not trending to a return to normalcy either, as end-use markets for plate have been battered, while HRC has benefited from strong downstream processing demand.
Currently, both products are subject to price increase efforts by mills, with HRC maintaining its edge and the US plate market still waiting to find its footing.
The year-to-date plate premium is at its lowest point after five-years of mostly declines. Based on S&P Global Platts HRC and plate price assessment mid-points, the average premium of plate over HRC was $197/st in 2012, $85/st in 2013, $160/st in 2014, $121/st in 2015 and has averaged just $30/st so far in 2016. HRC prices are based on a Midwest (Indiana) ex-works basis, while plate prices are on an ex-works southeastern US mill basis.
The pricing differential doesn’t tell the whole story, it was under $100/st in 2013 but if you look at the average prices for the products in 2013 compared to 2016, you can start to see the bigger picture. In 2013, HRC prices averaged $635/st and plate prices averaged $720/st.
However, looking at the average prices so far this year, HRC averages $524/st and plate is at $554/st. The differential was compressed in 2013 but plate prices are now 30% lower on average this year versus 2013.
As of November 15, ex-works transaction prices for the two products stood at $500-$520/st for HRC $450-$470/st for A36 plate. With recent mill price increases over the last 30 days, sheet prices have started to show some upward momentum.
Meanwhile plate prices have found a floor but buyers are still allowing the dust to settle before accepting announced mill price increases.
US sheet producers initiated their first round of recent price hikes at the end of October, by announcing $30/st moves that caught many in the market by surprise. Most were anticipating price increases, but not until the middle or end of November.
The early timing helped motivate buyers to get off the sidelines after waiting for a signal that the price erosion seen since August was over.
Since the first increase, an additional round of $30/st price hikes followed in the first week of November and a third round involving $40/st increases was initiated this week.
HRC transaction prices have been able to rebound $40/st as a result of the increases, up from a bottom of $470/st to a mid-point of $510/st as of November 15. It appears the higher prices have momentum heading into 2017 as well, with expectations that further increases will stick after buyers digest the rapid succession of price hikes.
Plate producers in the US are now attempting to play catch-up with sheet prices, as plate price hikes typically lag HRC moves.
So far, the plate market has seen a failed $30/st increase in October by Nucor and a more recent $50/st increase announced by the four major domestic plate producers, including Nucor, which told its customers in a letter: “Plate pricing has fallen to unsustainable levels. Furthermore, raw material costs have continued to increase. This necessitates a reset in the market.”
The $50/st increase is almost a sure-thing to not be a one-off move by the mills, with market talk surrounding a second $50/st increase in the works from at least on major plate mill.
But the first move has not added much clarity to where new base prices would stand, as there were large customer-by-customer variations in prices ahead of the increase. And, as new mill quotes at higher prices come in across the board, producers will continue to fight against a service center resale market that has not been supportive of mill asking prices during this year’s downturn.
However, plate inventories at service centers are getting lean. Metals Service Center Institute inventory and shipment data for October showed carbon steel plate inventories at US service centers at the end of the month totaled 719,800 st, a substantial drop from 784,300 st in September and a 22.7% decline from October 2015 inventories of 931,000 st.
October shipments of plate from service centers, a good barometer of demand in the US, are down 20.1% from last October and off 22.3% year-to-date. So despite the lean absolute inventory levels, demand for plate remains severely depressed and the market is about to enter the seasonally slower November and December US holiday periods.
Both products are on the move but the higher prices seen in the HRC market are likely to gain traction with plate buyers at a slightly slower pace.