Lead times have moved out for all products over the last week and a half as the orders which were on the sidelines came into the market. Many in the buying community who failed to “believe” that a bottom was developing have been left behind and are covering at numbers north of $650-$660. While many mills have closed December for Hot Rolled – some mini mill tons are still available, albeit at higher prices.
Spot Chinese ore has rebounded significantly over the last week. Two weeks ago the contract was valued at ~$115/tonne and is now trading in the mid $140’s. This should stem, for now, the notion that the Chinese market is going into a tailspin. While it does appear to be softening, and HRC is trading @ around $580, a bottoming point may occur now that there is some ore stability.
USA steel demand with strength in auto and OCTG is relatively better than other segments of the economy at the moment – however, EURO risk is driving fear and fear can drive demand. The coming debt crisis in Italy and Spain will likely at the very least cause the Dollar to appreciate – putting pressure on global commodity prices.
Orders entering the market for steel today represent “pent-up” demand from the price erosion over the last couple of months. It is doubtful that overall demand is really improving. But to the mills, it doesn’t matter. They will take whatever opportunity to capitalize on sentiment as they can and build some cost/price spread. This rally, while currently real (as there is a real possibility of HRC going to $700-$740), is likely to be short lived as anemic demand and strong supply prevail into first quarter and we erode back to $600 (assuming that raw materials remain stable to slightly downwardly priced). – Risk factor for 1Q. – unless significant cost/price spread develops for steelmaking there could be forced capacity outages here in the US as some mills remain below cost to selling value.