Steel prices always rise in September… don’t they?

Prices fell m/m in September only once in 18 years
A periodic review of seasonality in steel prices can be interesting when considering possible near-term market dynamics. Currently, some in the market in Europe and indeed around the world are anticipating or perhaps hoping for an increase in demand following the northern summer holiday period, which would in turn enable some increase in prices. Mills in particular will be hopeful of such an outcome because they have been going through a period of very poor margins, unable to increase steel prices at the same time that costs have been rising.

When we look back at month-on-month price changes in Italian HR coil since 2000 we see that there is indeed a strong tendency for prices to increase in September. In fact, this is the month of the year that prices are more likely to increase than any other:

Over the past 19 years prices increased m/m in September two-thirds of the time. Furthermore, apart from the unusual case of 2015 the last time that prices fell in September was all the way back in 2001.

The dynamic underlying this seasonal pattern is that buying picks up following the return to work from holidays. This is both to serve real demand that itself increases as manufacturers pick up activity after the holidays, as well as to replenish inventory that can then be used to smooth fluctuations in end-use demand over the remainder of the year. Inventory holdings will typically be minimised for year end so September is often the final time in the calendar year that this restocking effect is seen.

Will 2019 be an outlier or confirm to historical trend? CRU’s price forecast has included a price increase in September for a while and we maintain that view. But if there is only a limited boost to demand this price increase could be brief, especially with costs now falling sharply for some mills. In Europe there have been several output cuts announced. More cuts could be required if there is to be longevity to higher prices.