Can one steel mill tame pricing volatility?

With Nucor making weekly price announcements for hot-rolled coil steel, some pricing stability might have been introduced to the market. maki_shmaki/iStock/Getty Images

Nucor said when it introduced the weekly hot-rolled coil (HRC) price in April that the goal was, basically, to reduce chaos in the market.

Nucor’s number initially drove volatility when it posted $830/ton, which was $70/ton lower than Cleveland-Cliffs’ $900/ton. The move sent a market that was trying to gain momentum into a tailspin instead. (Whether that momentum was really justified is a separate question.)

HRC prices then drifted lower throughout the second quarter and into July. Yet even as prices fell, data from the American Iron and Steel Institute indicated that production was still rising.

I can see why some people concluded that domestic mills lacked discipline. They didn’t cut production even as big-volume discounts and CRU-minus contracts fell to breakeven or lower in July. That wasn’t supposed to happen (again) in a market that has seen significant consolidation since 2020.

Now it will be interesting to see how Nucor manages its weekly price—and how other mills react to it—in an upward market. We’ve seen prices falling more often than not since April.

Let’s consider the last big upcycle, which happened in the fall of 2023. The dynamics of the UAW strike against Ford, GM, and Stellantis largely drove that price spike.

Cliffs said it would seek $750/ton for HRC on Sept. 25, 2023. That was $90/ton more than the Steel Market Update’s (SMU) HRC price of $660/ton at the time. As often happens immediately after a mill price increase, SMU’s spot price dropped a little—to an average of $645/ton—the following week. (The low end of the range dropped even lower—to $600/ton.) The decrease probably reflected last-minute deals at the old price.

But prices shot up from there. By Dec. 6, 2023, Cliffs was seeking $1,100/ton for HRC. SMU’s price never got quite that high, but we ended 2023 at $1,040/ton, or as much as $440/ton higher than the low end of our range in late September.

I think the question Nucor is trying to address is this: Should that kind of rapid increase in spot prices be considered a success?

If we go back to last fall/winter, how many tons of HRC were booked at approximately $600/ton to $650/ton, the low point of the cycle? And how many were booked at about $1,000/ton or more, the high end of the cycle? My guess is that buyers placed a lot more with mills at the lower end of that range, and Nucor is trying to prevent that from happening again.

Figure 1. Steel buyers don’t see a big jump in steel prices occurring in the near future.

Let’s talk volume for a minute. Some of you have said, for example, that you tried to place orders for 1,000 tons with Nucor, but the steelmaker asked that you split that order up into four orders of 250 tons, placed once a week over a month. (I’m using 1,000 tons here as a theoretical example. I’ve heard similar stories from folks looking to place anywhere from 800 tons to 8,000 tons.) Maybe you decided to go along with that, or maybe you decided to go with another mill that was willing to let you buy 1,000 tons at once.

So, again, the goal with the weekly HRC price and metered sales volumes is probably to get more tons placed more evenly across the cycle or at least to moderate steel buying’s feast or famine swings and HRC’s boom or bust pricing cycle. Again, whether that effort will be successful remains to be seen.

Weekly prices aside, we learned from U.S. Steel’s earnings release in late July that the first coil from BRS2—the expansion of its Big River Steel EAF sheet mill in Osceola, Ark.—won’t be made until Q4. That’s later than initial rumors of a first coil shortly after Labor Day.

Also, we’ve heard from some of you that U.S. mills have been able to export a little more to Mexico in recent months with Altos Hornos de Mexico still down and with labor issues earlier in the summer at ArcelorMittal.

Another key point: The U.S. Department of Commerce hit Vietnam with nonmarket economy (NME) status. That is significant because Vietnam has become one of the largest offshore sources of steel to the U.S.—especially when it comes to coated products like galvanized and Galvalume.

NME status means that any trade case brought against imports from Vietnam could result in sharply higher duties, potentially high enough to effectively stop, or severely limit, Vietnam’s participation in the U.S. steel market.

What’s the takeaway? Let’s say domestic supply might be contracting at the margins. Does that give U.S. mills a stronger hand to enforce higher prices, or does uncertainty around the economy and the elections offset that?And what about demand?

What’s also notable is that, according to some of our survey results, most steel buyers don’t expect prices to go soaring upward as they have in past upcycles. Figure 1 shows where survey respondents think prices will be in the fourth quarter.

The vast majority of those we surveyed (88%) think HRC prices will be roughly where they are now or a little higher in Q4. Only 8% think they’ll fall below $600/ton, and only 4% think they’ll get above $750/ton.

Here is what some of them had to say:

Figure 2. Service centers overwhelmingly (77%) indicate that they are seeing a softening in the marketplace for their steel products.

If we are returning to pre-pandemic era mini-cycles, is the $600/ton to $750/ton range the new bandwidth for HRC?

Also, keep in mind that everyone has concerns about demand. It’s covered heavily in the news, whether it’s layoffs at Stellantis, cuts at John Deere, or a lackluster jobs report.

We also see it on our data too. Check out Figure 2.

True, sheet prices might be stabilizing. But nearly 80% of service centers report that they are releasing less steel than a year ago. And that trend hasn’t changed (or hasn’t changed yet) despite that relative stability in prices at the mill level.

What do you think might turn that trend around? Are the service centers learning to live with lower demand for the time being? Let us know your thoughts at [email protected].

We thank the more than 1,350 of you who registered for SMU Steel Summit. In the meantime, SME has a few more events on the calendar that might be of interest to you.

SMU’s Hedging 101 will be held on Sept. 25 at the Hyatt Centric The Loop Chicago, just blocks from the Chicago Mercantile Exchange. We’ll examine ways in which the CME’s HRC contract, and other derivatives, can help you manage price risk for your business.

Our next Steel 101 will be on Oct. 8-9 near Columbus, Miss. Attendees will learn how steel is made in the morning on Oct. 8 and then see it being made at SDI Columbus in the afternoon. It’s a great course for anyone new to steel or seeking a refresher.

Finally, the Tampa Steel Conference, which SMU puts together along with Port Tampa Bay, will be on Feb. 2-4 at the JW Marriott Tampa Water Street. It’ll be a great chance to get out of the cold and catch up with a few hundred of your best friends in steel.

Contact [email protected] to learn more about these events and for registration information. And thanks to all of you for your continued support of SMU. We really do appreciate it.