If steel prices are expected to continue rising in 2023, manufacturing demand for steel should be higher than at the end of 2022. Vladimir Zapletin/iStock/Getty Images Plus
According to the majority of respondents to our latest Steel Market Update (SMU) survey, plate prices have bottomed or are on the verge of bottoming. We are also seeing more and more people predict price increases in the coming months.
At a fundamental level, this is due to the fact that we are seeing a slight increase in lead time – an average of 0.5 weeks lately. For example, the average lead time for a hot rolled coil (HRC) order was just under 4 weeks and is now 4.4 weeks (see Figure 1).
Lead times can be an important leading indicator of price changes. A lead time of 4.4 weeks doesn’t mean that a higher price is a win-win, but if we start to see HRC lead times averaging five to six weeks, the chances of a price increase increase significantly.
In addition, mills are less likely to negotiate lower prices than in previous weeks. Recall that for several months, almost all manufacturers were ready for discounts in order to collect orders.
Lead times have increased and fewer mills are willing to close deals after US and Canadian mills announced price hikes of $60 a tonne ($3 a hundredweight) a week after Thanksgiving. On fig. Figure 2 provides a brief overview of price expectations before and after the announcement of the price increase. (Note: Panel mills are more willing to negotiate lower prices as leading panel maker Nucor announced a $140 per tonne price cut.)
Forecasts split before the panel mills announced price hikes. About 60% believe that prices will remain at about the same level. This is not uncommon. Remarkably, almost 20% believe they will exceed $700/tonne, and another 20% or so expect them to drop to $500/tonne. This surprised me at the time, as $500/tonne was close to breaking even for an integrated plant, especially when you factor in the discount to the contract spot price.
Since then, the $700/ton (30%) crowd has grown, with only about 12% of respondents expecting prices to be $500/ton or lower in two months. It is also interesting that some forecast prices even higher than the aggressive target price of $700/t announced by some mills. This result looks like they are expecting another round of price increases, and they believe that this additional increase will gain momentum.
We also saw a small change in prices at service centers, suggesting some subsequent impact of higher factory prices (see Figure 3). At the same time, the number of service centers increased (11%), reporting price increases. In addition, fewer (46%) will cut prices.
We saw a similar trend in August and September after a series of factory price hikes. Ultimately, they failed. The fact is that the week does not form a trend. Over the next few weeks, I’ll be watching closely to see if service centers continue to show interest in price increases.
Also keep in mind that sentiment can be an important price driver in the short term. We’ve seen a big surge of positivity lately. See fig. 4.
When asked if they were optimistic about the outlook for the first half of 2023, 73% were optimistic. Given that the first quarter is usually busy, it’s not unusual to see optimism in the new year. Companies are replenishing their stocks ahead of the spring construction season. After the holidays, the activity of cars increased again. Plus, you no longer have to worry about stock taxes at the end of the year.
However, I didn’t expect people to be so optimistic about headlines about war in Europe, higher interest rates and a potential recession. How to explain it? Is it optimism about infrastructure spending, provisions of the Inflation Reduction Act that encourage the construction of steel-intensive wind and solar farms, or something else? I would like to know what you think.
What worries me a little is that we are not seeing significant changes in overall demand (see Figure 5). The majority (66%) stated that the situation is stable. More people said they were going down (22%) than they were going up (12%). If prices continue to rise, the steel industry should see an improvement in demand.
With all the optimism around 2023, another factor that makes me wonder is how service centers and manufacturers handle their inventory. I think I can now say that 2021 is a year of restocking, 2022 is a year of destocking, and 2023 is a year of restocking. It may still be so. But it’s not about the numbers. The majority of respondents to our survey continue to report that they are holding stock, with a significant number continuing to draw down stock. Only a few reported building stocks.
A strong manufacturing economy in 2023 depends on whether and when we see a restocking cycle. If I had to pick one thing to keep an eye on over the next few weeks other than prices, lead times, factory talks, and market sentiment, it would be buyer stocks.
Don’t forget to register for the Tampa Steel Conference February 5-7. Learn more and register here: www.tampasteelconference.com/registration.
We will have senior executives from factories in the US, Canada and Mexico, as well as leading experts in energy, trade policy and geopolitics. This is the peak tourist season in Florida, so consider booking as soon as possible. There were not enough hotel rooms.
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Post time: Feb-15-2023