Steel price decline continues: What does that mean for metal manufacturing?
Domestic hot band prices are rolling downhill at an accelerated rate, showing no signs of slowing down yet. But how low will prices fall, and how long will it take to get there? (Whoever last checked out the crystal ball, could you please return it?)
Hot-rolled coil (HRC) prices were at $935/ton ($46.75/cwt), according to Steel Market Update’s (SMU) latest check of the market on June 6, down $135/ton over the past month and down $225/ton from the most recent high of $1,160/ton back on April 11.
Present dynamics are eerily like what we saw last summer (see Figure 1), and we all know where that led us: a low of $615/ton on average for HRC by Thanksgiving.
But in many ways, it’s not much of a surprise that flat-rolled prices are declining, especially at the current rate. Several other markers SMU tracks are trending down and have been doing so for the better part of the past few months.
HRC lead times have just dipped below the five-week mark on average for the first time since early February, presently ranging between three to seven weeks. The ongoing shift in domestic mills’ readiness to negotiate with buyers on new orders continues, a change from just 26% of buyers of hot band saying mills were willing to negotiate as recently as early April, to about 96% this week, according to SMU’s most recent survey data.
And that’s not all. Steel buyers’ sentiment remains at some of the lowest marks since December, even if it looks like it recovered slightly from a seven-month low of +58 reported in late May.
All these indicators seem to signal the present price downtrend has more room to go. I’m certainly not willing to speculate what will happen next, but all our indicators and several economic gauges seem to be pointing down.
SMU’s Steel Demand Index also indicates apparent demand for flat-rolled steel in the U.S. is in negative territory, a place it’s been since late April, and likely to contract further. The index has continued to shrink and has now been below 50 for four straight readings, which indicates contracting demand. The reading is at 42.1, down 1.4 points from late April’s measure, the lowest total since Dec. 8, when the market last bottomed out (see Figure 2).
This indicator is worth monitoring as it compares lead times and demand and is a diffusion index derived from SMU’s biweekly market surveys. This index has historically preceded lead times, which is remarkable given that lead times are often a chief indicator of steel price moves.
SMU’s demand diffusion index has, for nearly a decade, preceded moves in steel mill lead times. (Figure 3 shows the past five years.) Historically, SMU’s lead times also have been a top indicator for flat-rolled steel prices, particularly HRC prices. (Figure 4 features the past five years.)
We’ve just now started to review survey responses, but they continue to point lower, with more than two-thirds of survey respondents in our latest flat-rolled market analysis saying that prices will either bottom in July or August, with another nearly 26% expecting prices to bottom in September or later. And as for those prices, well, early survey results note that more than 65% of steel buyers expect prices to be at or below $850/ton by August.
Yet, while some sources continue to point to steady backlogs, many argue demand and output are working against each other. And as offshore product tags are dropping aggressively, raw material prices also have dropped considerably, an indication that flat-rolled prices have more room to fall.
Additionally, others would note that present dynamics in the steel market are simply a culmination of the overall slowdown in the economy. While economic pundits debate whether we are in a recession or it has yet to start, many believe that downturn will soon come to pass.
Worrisome in the near term is the fact that these indicators are pointing lower ahead of the historically slower summer period. We’re presently midway through June with a solid two months to go before the steel industry truly engages in contractual talks. Seasonality and a typical summer holiday slowdown could potentially drive demand lower, with prices sure to follow.
SMU Steel Summit
Speaking of contract talks, the premiere U.S. steel conference that unofficially kicks off annual supply contracts is just a few weeks away.
The agenda is packed full of industry experts and key players, and registrations are climbing fast. I know some of you have already registered and booked travel for Steel Summit on Aug. 21-23 in Atlanta. If so, you’re one of nearly 700 people who have already done so.
We had more than 1,300 in attendance last year, and we’re on pace to easily exceed that total. So, you may want to consider booking your hotel soon if you haven’t already. Discounted room blocks are going fast, and non-discounted prices are much higher than in past years.
You can learn more about the agenda, networking opportunities, and how to register here.
Metal prices will likely see a marginal improvement in 2024 in the global commodities market due to weak Chinese demand and deceleration in global growth, research agency BMI, a unit of Fitch Solutions, has said.
However, the World Bank expects a further decline in metal prices from 2023 levels on slowing demand and ample supply before stabilising in 2025 as demand recovers. The Australian Office of Chief Economist has a mixed view on metal prices going forward.
BMI said on a year-on-year basis, most industrial metals and energy commodities will see gains in 2024 compared to 2023. “A weaker dollar (our Macro team expects the DXY to trade between 100-108) than the highs of 2022, continued supply constraints and positive sentiment will support commodity prices in 2024,” it said. The research agency said on the downside, weak global growth (its Country Risk team expects global growth to come in at 2.1 per cent in 2024, compared with 2.6 per cent in 2023) and a slowing Chinese economy will cap price growth.
Biggest likely gainers
“In terms of annual averages, we expect natural gas, iron ore, tin and aluminium to see the biggest gains in 2024 compared to 2023, with the sharpest declines for zinc...
“In general, prices should remain rangebound between their 2022 highs and their pre-Covid lows, with significant volatility (although less than 2022 and 2023), as investors grapple with recession risks, a fraught geopolitical environment, fluctuations in the dollar and the impacts of El Niño,” BMI said.
The World Bank said in its Commodity Outlook that base metals prices are expected to continue their steady decline into 2024 as economic activity in China and other major economies is anticipated to remain subdued and supply continues to improve. “Prices should fall by 12 per cent in 2023 compared to 2022 and by 5 per cent in 2024. Outside of China, high borrowing costs could reduce demand for metals, such as lead and tin, which are intensively used in industry and consumer durables,” it said.
Slowdown in construction
A further slowdown in new building construction in 2024, especially in Europe, stemming from high interest rates and lacklustre activity, could further dampen demand for some metals, the bank said, adding that subdued global activity and easing of supply constraints are expected to further lower prices in 2024.
BMI said the decline in the dollar’s strength in the second half of 2024 and rising demand due to the green energy transition will support copper, aluminium and tin prices. “Our Macro Team believes that the July hike was the final one by the US Fed, and continues to expect 100 basis points worth of cuts in 2024, starting in the middle of the year. Fed Chair Jerome Powell’s comments at the International Monetary Fund conference rekindled fears of another rate hike, which has the potential to pressure prices in the early months of 2024,” the research agency said.
Upside risks
Nevertheless, the anticipated weakening of the dollar in the latter half of 2024 is set to serve as a catalyst to drive prices higher, despite possible early-year pressures, it said.
Additionally, BMI sees some upside risks in 2024 on positive investor sentiment stemming from hopes of a turnaround in the Chinese property sector, with some form of stimulus from the government. “This is expected to add support to metal prices, especially iron ore. We also forecast lead prices to average higher as demand is expected to outstrip production, while nickel and zinc prices will decrease from 2023 levels mainly due to excess market supply,” the Fitch Solutions arm said.
The Australian Office of the Chief Economist (AOCE) said aluminium prices are set to rise as energy-efficient tech supports the demand for the metal.
Copper outlook
The World Bank’s Commodity Outlook said subdued global activity and easing of supply constraints are expected to further lower aluminium prices in 2024 in addition to the anticipated 15 per cent fall in 2023.
It said copper prices are forecast to fall further in 2024 by 5 per cent, reflecting weakening global demand and strong supply growth. “Mining output is set to increase strongly in the latter part of 2023 and throughout 2024 due to start-ups and expansions in several countries, including Chile, the Democratic Republic of Congo, Indonesia, Peru, Russia, and Uzbekistan,” it said.
The AOCE said weaker Chinese recovery, manufacturing and trade headwinds are weighing on copper prices.
Surplus nickel supply
The World Bank said lead prices are expected to remain relatively stable in 2024, after declining by 2 per cent in 2023, amid a steady increase in supply. “Mine production growth is expected to accelerate in 2024 and grow moderately in the medium term,” it said.
AOCE said the global surplus supply in nickel will likely persist on supply growth in Indonesia and China.
The World Bank expects nickel prices to drop a further 10 per cent in 2024 from the 14 per cent in 2023 as production in Indonesia and the Philippines (the two largest global producers) continues to grow.
It said tin prices are expected to decrease by an additional 4 per cent in 2024. “Demand for tin, a key component of electronic manufacturers, is expected to remain subdued reflecting weak economic activity in major economies in 2024,” the bank said.
According to Tom Langston, Senior Market Intelligence Analyst of the International Tin Association, the volatility in the tin market on the London Metal Exchange continues as prices drooped last week to their lowest level since March below $23,000.
Zinc prospects weak
“Promising semiconductor growth and an improving global inflation picture adds some positivity to a weak demand picture. Concerns over supply issues in Wa state and Indonesia persist as we look towards 2024,” he said.
AOCE said China’s ongoing property crisis has weakened the prospects for zinc demand over its outlook period, with the price forecast to average $2,600 a tonne in 2025. “Zinc prices are expected to drop in 2023 and fall by a further 4 per cent in 2024 on weak demand and growing supply. Zinc supply is set to expand in the medium term, particularly from large projects in the Democratic Republic of Congo, Russia, and South Africa,” the World Bank said.
The AOCE said China is projected to see a modest fall in total steel output over the outlook period to 2025. “As China accounts for almost 60 per cent of global iron ore demand, this is expected to soften the rate of growth in global iron ore demand in the coming years, driving iron ore prices down,” it said.
The World Bank said as a result, iron ore prices are expected to decline further in 2024 from the 11 per cent projected decline in 2023.
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