The relative stability of U.S. sheet prices in January has given way to a rapid decline during the start of February. Plentiful inventories from a flurry of buying done at the end of last year (see top chart) has now put enough material in the market that sellers have had to offer steep discounts to secure market share. Prices in Mexico followed the trend set in the U.S., but mills in Brazil managed to secure price increases on high raw material costs.

U.S. sheet prices have fallen substantially m/m during the second week of February, with prices for HR coil now down by $172 /s.ton m/m at $926 /s.ton. Falls in CR coil and HDG coil base prices were less intense, but large in their own right, with the former falling by $51 m/m to $1,259 /s.ton and the latter down by $103 /s.ton at $1,230 /s.ton.

Material availability has quickly expanded in recent weeks, resulting in a sharp drop in prices m/m. While lead times recorded by Steel Market Update dropped by nearly a week at the end of January to 5.2 weeks for HR coil, market participants report that lead times for certain mills have now dropped to as low as three weeks. They also report that at least one integrated mill is offering highly discounted material in an effort to fill their order books, while others in the southern U.S. are staying aggressive with prices to maintain control over market share. Although these prices are much lower than even a month ago, mills are still making money on these deals, and it makes more sense to take orders at lower price levels as opposed to taking downtime or allowing a competitor to secure the same transaction.

End-use demand has been steady, but many buyers report sitting out the current market downturn as prices collapse. The questions now are when will this current decline end, at what price level and will buyers drop inventories too low before needing to rapidly restock again and send prices on another strong upward trajectory? One factor to keep an eye on will be the amount of imported material arriving in the U.S. in the coming months. According to U.S. Census Bureau license data, January is set to be the strongest month of light-gauge flat products since August 2022. Based on lead times and discussions with market participants, we expect these numbers to rise in the coming months.

Heavy buying activity in late 2023 caused inventory to rise, creating pressure on prices
LHS: Shipping days of supply, y/y
RHS: Material on order (units intentionally left blank)

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The pace of decline for near term HR Coil futures from CME Group has intensified over the past few weeks. A sharp drop is now priced in through April before futures prices stabilise in H2 2024.

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Near term prices of CME Group’s HR coil forward curve, as of February 12, fell sharply since our last report on January 8. For 2024, this data has priced in an annual HR coil price of $851 /s.ton versus $884 /s.ton last month.

The largest decline was seen in the near term where contracts for March through July fell 7.3% m/m from an average of $864 /s.ton to $801 /s.ton. After this drop, the forward curve rises from a low of $775 /s.ton in April to $845 /s.ton in December. As these futures contracts fell, the amount of open interest surged higher, recording an 18.8% m/m increase. Open interest currently stands at just under 500,000 s.tons.

The HR Coil futures market is not a forecast, it can provide value for buyers and sellers. Today, prices in the physical market have quickly fallen as steady end use demand has been met with rising mill production, surplus inventories and a rising trend of imports. Natural sellers may still find value in the forward curve, particularly in H2 2024 where prices were an average of $836 /s.ton as this remains well above lows reached in the past two years. Natural buyers may also find value in these prices as well as 2025 prices at an average of $865 /s.ton. The ability to lock in a known fixed price may help with strategic planning.   

CME Group futures values move back towards lows seen in the last two years
Settled vs. futures prices, $/st

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