-With just about all market participants expecting price announcements, one could make the case that another week without a price hike would be a sign of weakness from the supply side. Enter AK Steel and Friday’s $ 40 per ton increase. With the CRU HRC weekly number backing up by three bucks last week, an increase will serve to shore up the initial hike.
-Building on the success of the July 1st increases, a second round of announcements began to seem inevitable. As August scrap deals settle, August scrap numbers look poised for a rebound- as much as $ 50 / ton.
-Market sentiment and upward scrap momentum are the lone bright spots in an otherwise dismal composite of steel making and metal commodities. Iron ore prices were crushed due to an oversupply of ore in Asia with spot ore prices to China down over 6% just last week- representing the largest weekly drop in ten months.
-Recent lower North American capacity has been well by the marketplace, but how long will production remain at these lower levels? Renewed capacity may be just on the horizon– maintenance shutdowns will wrap-up at summer’s end and Sparrows Point has attracted three bidders.
-The first three days of the week saw global financial markets continue a significant move lower from the previous week. The Euro dropped below 1.21. After the ECB announcement, markets rallied. The Dow Jones rallied over 400 points on Thursday and Friday and the Euro rallied just below 1.24.
-The HRC futures market was very quiet and little traded. Downward pressure from ore prices was mitigated by expectations of mill price hikes and the impending Arcelor Mittal (MT) (Sept. 1) and U.S. Steel (X) (Oct. 1) labor negotiations potentially leading to work stoppages. We expect the HRC futures market will rally a bit next week in reaction to the price hike, additional mill price hikes, if the reverse upward in global markets continues and if the iron ore market finds support.
-The outlook is that the effect of this price increase will be brief followed by lower prices later in the year. The wild cards are whether these price hikes are pulling demand forward (due to the expectation of higher prices) at the expense of demand later in the year, the effect of discounted ore and scrap prices and the outcome of labor negotiations at MT and X.