Sheet prices in the USA continued to surge in April amid an ongoing mismatch between supply and demand. While these fundamentals still remain out of balance, the market is slightly looser than it was in March. Material availability appears to be higher as some buyers receive material early and import levels rise, while demand appears have remained stable over the course of the last month.

U.S. sheet prices were up again substantially m/m in April, with HR (hot rolled) coil rising by $186 /s.ton to $1,203 /s.ton. CR coil prices were up by even more, increasing by $206 /s.ton m/m to $1,383 /s.ton, and HDG coil base prices were up by $157 /s.ton at $1,372 /s.ton. Prices are now at their highest levels since June 2022 as mills have been able to push through nearly all announced price increases so far. While these monthly increases were large, we have seen signs of a slowdown in upward momentum in recent weeks. CR coil prices have fallen for a second week in a row, while HDG coil prices this week underwent their first weekly decline since mid-February. This is not necessarily the start of a downtrend yet, but buyers seem to be becoming more risk averse with prices having risen now by $585 /s.ton over the last five months, and we note that both the number of transactions and their volumes were down substantially compared to any other week this year or last. This slowdown is also likely also a reflection of the amount of material on order, which is now at its highest level since 2021 Q3.   

Following up on recent price increase announcements over the past few months, one mill announced another price hike in the first week of April targeting $1,300 /s.ton as a base price for HR coil. So far, other mills have yet to follow and, according to market participants, have been content at holding HR coil prices between $1,150-$1,200 /s.ton for now.

It remains to be seen if mills will join in on the latest price hike as many buyers have now stepped back from the market. Lead times have plateaued, as measured by Steel Market Update, at 6.7 weeks for HR coil, although market participants report that they are receiving material more quickly than expected which is a signal that domestic supply may be becoming looser. In addition, imports are on the rise but have not yet been a factor in terms of strengthening supply availability. Still, the gap between markets abroad and the U.S. market are now much higher than at any point in 2022 (see chart). For example, the gap between HR coil domestic prices between the U.S. and German markets has now risen to around $340 /t compared to roughly $240 /t during its 2022 peak. This price disparity has not yet been reflected in import data, but likely will soon. March light flat rolled imports rose to 522 Kt from 446 Kt in February but remain below their one-year monthly average of 603 Kt.

Demand has remained stable overall this year, although some indicators suggest that this is becoming less the case for April as the market slows seasonally. For instance, the Institute for Supply Management’s PMI showed that the manufacturing sector remained in contraction territory for a fifth month in a row during March – although this is coming from an elevated level last year. Data from the U.S. Bureau of Economic Analysis show an uptick in automotive production for February, but this still remains well below levels seen in September and October 2022. Market participants in the sheet market also reported that they were uncertain of where demand is heading in the next few months and are minimizing purchases for the time being.  

A surge in prices relative to the global market have made the USA a target for imports
LHS: Domestic U.S. and German HR coil prices, $ /t
RHS: U.S. price premium over Germany, $ /t

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Prices of CME Group Hot-Rolled Coil Steel futures contracts have fallen back after surging higher in early March. While futures prices fell sharply, open interest in the contract has increased dramatically.

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The increase of open interest on CME Group Hot-Rolled Coil Steel futures contracts has picked up speed over the past month. Earlier this week, overall open interest stood at 568,000 s.tons, with open interest for April through December of 2023 up 33% m/m since 7 March. While open interest has increased, prices for April through December have fallen by 10.9% from an average of $1,049 /s.ton on 7 March to $935 /s.ton this past Monday.

This bearish price environment has not only extended through 2023, but for all of 2024 and 2025. While volume is low on these outer years, futures have priced in an average of $826 /s.ton for 2024 through 2025.   

Price volatility has been a key feature of the market for both physical and financial HR coil in the USA. We expect volatility to remain, especially as physical HR coil prices stay elevated in April, possibly higher than where the futures contracts were trading. Additionally, our expectation of a recession and tighter credit availability may present more downside to demand in 2022 Q4. While our views will change with new data, we continue to see benefits that the futures market provides to both physical buyers and sellers as they navigate these volatile times.

HR coil futures drop on significantly higher levels of volume
LHS: CME Group HRC Steel contract prices, $/st
RHS: Open interest, contracts, st

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