By Raul de Frutos
Our Raw Steels MMI rose 4% in October, meanwhile flat-rolled products in the U.S. continued to fall sharply.
This is a strange divergence in prices and something to take into account. Indeed, the fact that international prices are rising while they fall domestically suggests that prices in the U.S. are close to finding a floor.
This summer, the price arbitrage between U.S. and international steel prices was huge. Well above historical levels. Two months ago we predicted that this unprecedented price arbitrage wouldn't last, since enough holes existed in the anti-dumping duties to allow material to reach U.S. shores. But now, domestic prices have declined enough that this arbitrage is falling back to normal levels.
Take, for example, hot-rolled coil. The price spread between Chinese and U.S. HRC is now below $150 per ton from $280/st just two months ago. At these levels, U.S. prices should start following Chinese prices; as we are used to, and given that prices in China are hitting new highs, it's normal to expect U.S. prices to stabilize toward the end of the year.
Cold-rolled coil prices in the U.S. are still expensive compared to China, but not nearly as much as they were during summer. The spread between U.S. and Chinese CRC has halved in just a few weeks. The spread has fallen from its peak at $420/st to stand now at $195/st. Still elevated but not much above of what we are used to.
Chinese Demand Still Looks Strong
Chinese demand from infrastructure and construction has been robust this year. So has its auto sector, a key industry for steel demand.
In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth is above 20%. The growth rate this year is substantially higher than last year. Steel prices in China have held well thanks to strong domestic demand. This could continue to support prices in China and in the U.S., too now that the price arbitrage between China and the U.S. has come down to normal levels.