The market has continued its downward movement this month. Most market participants, including those responsible for publishing established indices, are searching for the actual market price. According to established indices, the price of hot roll coil currently sits between $700 and $720 per ton. This reflects a decrease of more than $65 per ton compared to last month, and a recent weekly change is close to another $50 down. We are now in the seasonally slow summer months, which usually exerts further downward pressure on pricing.
The CME Futures market has adjusted downward, but this does not portent a collapse in pricing. As of now, July HRC is at $732, August at $715, and September at $730. However, these values precede any influence of the significant weekly price declines just published. Many market participants feel the bottom is near, and that the near-term market price aligns with the trend of CME Futures directionally – down to steady.
Nucor’s CSP fell from $720 last week to $715 this week. Although this metric had recently been leading directional change in market price against more established indices, it now is fairly aligned with them.
Taken as a whole, these market guides all suggest we are near the bottom price.
Demand / Capacity
Some see demand as regionally dependent, but it might be better to think of it as industry-specific. In the upper Midwest, demand is off as it reflects documented declines in Agricultural build and employment layoffs. Construction equipment is also on a downward trend. Other areas seem steady or holding. Automotive sales are up 7.6% month on month and 2.6% year on year.
Monthly price swings earlier this year suggested the market was seeking equilibrium. True demand seemed difficult to gauge, and mill capacity utilization remained fairly high, hovering around 79%. The market was variable as buyers resisted mill price points and then yielded to buying at minor dips in pricing. Now mills have adjusted capacity utilization down to 76.4%. This suggests that the mills realized they could not push material into the market and hold price at the same time. The mills are hoping to put a floor under price declines. They realize reasonable returns of lower volume given the spread to scrap, at around $370 per ton, while still allowing operational profit.
Expectations
All of this does not suggest we are approaching stable market pricing. Those using market timing as a buy strategy are on the edge of their seats. Some of these players look to lock in price by securing physical inventory required for 6 or even 12 months of production. Although this is an understandable strategy, it has its own risks. An unintended outcome is that it supports the volatility we see in the US market compared to other global markets. A sudden surge in buying could easily drive a temporary near-term spike in prices before the market again settles or declines – now missing the support of those with buy-ahead positions in hand.
