By Raul de Frutos
Steel prices have been rising since February, and at the same time, we witness a broad recovery among industrial metals thanks, in part, to a weaker dollar and higher oil prices.
Steel prices are also getting a boost thanks to new anti-dumping determinations, a decline in US imports and a surge in iron ore prices. It's pretty normal to see sharp rallies in bear markets only to then see prices fall again. Indeed, we just saw that pattern in steel prices last year. It's yet not clear how long this rally will last, but current macro-conditions will need to improve to make us think the rally is finally the one ending this bear market.
HRC vs. CRC. Source: MetalMiner IndX.
Meanwhile, looking at different steel products, we are seeing an abnormal divergence between hot-rolled coil (HRC) and cold-rolled coil (CRC). These two tend to move in tandem, but lately, we are witnessing CRC prices appear to be much stronger. The spread between CRC and HRC has increased to $170 per standard ton, the highest since 2008.
CRC - HRC price spread. Source: MetalMiner IndX.
There are some things happening in these markets that might explain why domestic CRC prices are rising much more than HRC prices:
CRC Dumping Margins
CRC products were hit with a super-high dumping margin of 265% from China, effectively shutting down CRC imports from the world's most populous nation. That is, in turn, causing a domestic price resurgence. Meanwhile, HRC products were also hit with a dumping margin but much lower and not from China. This is also helping slow down HRC import volumes but not to the same extent as CRC.
In addition, lead times for CRC are longer than HRC - meaning demand is stronger in general. That helps provide price support (in theory, the longer the lead times, the greater the demand).
While HRC pricing and lead times have lagged for cold-rolled and galvanized products, there are signs that HRC prices and lead times are beginning to move in an upward direction, at least in the short term. Longer term, anti-dumping and lead times might not be reason enough to expect higher prices in an oversupplied market.