I recently had the opportunity to present CRU’s steel sheet price forecast to the nearly 1,300 attendees at the 12th annual SMU Steel Summit conference. This was the eighth time I have attended the conference and sixth time speaking.
A year ago, I presented to an audience that was largely expecting sheet prices to surpass $2,000 /s.ton and remain at significantly higher than historic levels for an extended period of time. In one word, the crowd last year was euphoric. Our expectation at the time was that prices would peak in the coming weeks and fall by more than 50% over the coming 12 months.
Our expectations then were largely realized. Prices in mid-August 2022 had fallen by 61% from their late September 2021 peak. These declines came as rising production and imports met weaker demand growth, an inventory surplus, and new steelmaking capacity.
This year, the market has changed. Like many other materials or commodities, supply has come back online and inventories were rebuilt while demand has settled into more typical levels. In other words, prices have moved through the post lockdown bell curve and a new market environment is at hand.
The data available for my presentation showed that mill shipments through June are flat YTD. Meanwhile, shipments of flat rolled sheet at service centres are down 4.1% YTD through July and inventory levels there remain in a surplus.
Looking ahead, mill production will increase from not only the restart of a blast furnace in Cleveland, but also the ramp up of three new EAF-based mills. This increased capacity will continue to keep pressure on sheet prices this year and next as growth in end demand will steady at a slower pace than what was experienced recently.
The US market is not alone with these fundamentals. Demand has slowed elsewhere in the world and the period of supply tightness has passed in all other markets. This has allowed steel prices to fall across all markets, leading to an increasingly competitive global market.
Our expectation for sheet prices in the US market in 2023 are for less volatility than what was seen from 2020 – 2022. We expect that HR coil prices will average close to $760 /s.ton in 2023 and be much more in line with their historic spread over costs.
However, there are multiple risks that inevitably will affect this market. These include a faster than expected return of automotive production or new, significant stimulus from China as lockdowns from Covid-19 ease. On the downside, some risks include a potential recession in the US or other markets which leads to lower demand and prices of steelmaking raw materials.
I continue to find this late August conference to be a must-attend event. Many CRU clients attend and use it to help with strategic plans for the coming year. I look forward to attending next year on August 20th – 23rd, 2023.
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