Steel prices cycle down from early 2023 spikes

Service centers are looking to reduce inventory in the face of declining steel prices. Vladimir Zapletin/iStock/Getty Images Plus

The drop in sheet prices that we’ve seen at the mill level is now spreading downstream—an abrupt shift from just a few weeks ago, according to our latest survey data.

More service centers are cutting prices. I had expected to see an increase in the number of service centers reporting that they were reducing prices (see Figure 1). I did not expect to see such a big jump so suddenly.

Only 4% of service center respondents to our survey at the end of April said that they were lowering prices. That number has since skyrocketed to 50%.

Here is some context: We saw that number rise slowly in late 2021 as supply caught up to demand and then overshot it. What’s happening now more closely resembles what we saw after Russia’s invasion of Ukraine last year: a spike in service centers’ raising prices, followed by an equally sharp decline once the initial shock of the invasion passed.

The drivers are different this time. Prices surged in Q1 2023 when expectations of an economic slowdown and a sheet supply glut didn’t materialize. We were instead greeted in early 2023 by a resilient economy and a supply deficit with imports low, Altos Hornos de México's halting production, and new capacity slow to ramp up.

Many of those factors have reversed. Fears of a recession have been kicked into the second half of 2023. Certain new capacity continues to ramp up slowly. But some of you might be getting calls from mills you might not have heard from for a while as they are looking to sell their increased capacity. Import prices for summer delivery to the U.S., meanwhile, remain sharply lower than current domestic prices.

Figure 2 is a reminder of how big the gap is between U.S. hot-rolled coil prices and HRC prices in the rest of the world.

We’ve also seen a big change in inventory management. Service centers and manufacturers in late April were mostly looking to maintain their inventories. Now many are looking to slash stocks (see Figure 3).

In late April, only 15% of manufacturer respondents and 8% of service center respondents said they were reducing inventories. Those figures have jumped to 40% and 31% respectively.

Why are so many steel consumers now cutting prices and looking to move inventory? Here’s what some of them told us:

Figure 1. Service centers have rapidly changed course in a matter of a few weeks, reducing prices to clear their inventories.

That’s a bit dark. I’ve been ending these columns as well as recent webinars and speaking engagements on an optimistic note. I’ll do that again today.

Most respondents, 85%, continue to say that they will meet or exceed forecast (see Figure 4). We’ve seen that trend in place most of this last year. It remains there now despite what I outlined above and what we’ve noted in recent newsletters—reduced mill shipments, shorter lead times (particularly for galvanized material), and the mills’ willingness to negotiate lower prices.

But the near future might be looking a bit more cloudy. Only 7% say they will exceed forecast in May, down from about 30% in March and April. Demand for steel has not stopped, but it’s a little softer than it had been.

Is it just a case of the summer doldrums arriving a little earlier than usual? Or is it something more than that? As it stands now, most survey respondents, 65%, think prices will bottom in July, August, or later (see Figure 5).

Here is what some of them had to say:

In short, the consensus is that prices will continue to fall over the next two months. But a significant minority of survey respondents think that prices have already bottomed or will soon.

Said one respondent in that camp: “Demand is picking up in a few key sectors of the industry. Even though scrap continues to drop, there is light at the end of the tunnel for price leveling.”

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