Raw Materials Pushing Steel Prices Higher

 |  Includes: AKS, MT, NUE, RS, X
by: Michelle Galanter Applebaum

Price Hikes on Broad Range of Steel Products. With the notable exception of OCTG – which ironically got a potential boost recently from the first meaningful trade case in years - we’re seeing yet another round of price hikes for domestic steel products. These increases reflect not only the jump in the surcharge from higher scrap prices, but continued global price hikes driven by demand strength in emerging markets. Chinese steel demand is profound, and surging iron ore prices are driving an inflationary spiral in the region as steelmakers and their customers clamor for material. Meanwhile prices in the US are rising despite virtually no improvement in demand.

Sheet Prices Rising Past $600, up $140 in 40 Days. Following AK Steel’s (NYSE:AKS) $60/t price hike on sheet earlier this week, industry-leader Nucor (NYSE:NUE) followed with a similar $40/t bump on sheet, also effective immediately. These increases will lift the price of hot-rolled coil (HRC) to an estimated $610-625, up $140/t from a low of $485 in early December.

Longs Mixed; Plate and Rebar Base Rising; Beam and Merchant Bar Base Down. Nucor led a round of hikes on long products, adding a $50/t surcharge with a $10/t base-cut for beams and merchant bar, and a $10/t base-hike on rebar and plate.

Cycles Compressed in the New Normal. The net result of a combination of bare-bones inventories with these occasional demand upticks is likely to bring us to a permanent new normal of oscillating steel prices in cycles far shorter than we’ve seen in the past. Already last summer, sheet prices ran up a whopping 40% from July to October with a pickup in the domestic operating rate from an anemic 47% to a sickly 62% - hardly a full enough market to get any price increase in historical terms. While this volatility creates opportunities for those who trade either commodity steel or steel equities, it’s meaningfully unhealthy for the domestic and global steel industry as it will wreak havoc on steel prices and costs as well as production schedules, corporate forecasting, and ultimate industry profitability and financial health.

Disclosure: Author holds long positions in NUE, RS, CLF