Metal market

The thesis of the ‘overcapacity’ of the steel industry fails for ’21 | American Metals Market

Contrary to previous predictions that new steel production capacity in North America would reverse this year’s record price surge, analysts and market participants have now indicated that the additional production will not have much of an impact before. 2022.

Any prediction that a new plate offering would reduce coil labels by this summer lost a pivot when Steel Dynamics Inc (SDI) announced that its new smelter in Sinton, Texas would not start until the fourth. trimester. No increase in imports from Mexico is expected in the near term, either from Ternium’s new hot rolling mill or ArcelorMittal Mexico’s hot strip mill, which will not start production until late in the year. the year.

While at least 7 million tonnes of new capacity is still under construction, Amy Bennett, senior consultant for Fastmarkets MB, said projects were tainted with postponements. The timing of these volumes is very much in question, and it may be another year or more before the additional tonnage dent in prices.

“The long-awaited addition of steel production capacity in the United States continues to be delayed, with steel mills facing many disruptions from their original plans,” Bennett said on Monday, August 2. “The supply chain, distribution and sourcing and workforce issues triggered by the pandemic have – reach the implications, and building and starting new steel production capacity does not. have not been immune to these challenges. ”

The largest of the projects is SDI’s Sinton plant, which was previously scheduled to start melting this summer. So far, she has only managed to start her paint line. The coating lines are now expected to start operating in August. And last month, the company adjusted its planned start of its fusion shop for the fourth quarter.

“We expect other producers to face similar project delays, with the addition of new steel capacity in the United States likely not having a noticeable impact on prices until that [the second half of] 2022, ”Bennett said. “Even so, the market is unlikely to tip into serious oversupply, and we expect prices to stay well above long-term average prices next year.”

Coil capacity expansions are also underway for 2021-2023 at Nucor Gallatin in Kentucky, North Star BlueScope in Ohio, the Calvert joint venture of ArcelorMittal and Nippon Steel in Alabama, and potentially later in the Big River division. Steel from US Steel.

Two new Mexican projects are no longer believed to have an immediate impact on the US coil market. Ternium started producing coils at its new hot rolling mill in Pesquería, Nuevo Leon state, in May. The ArcelorMittal Mexico project at its Lázaro Cárdenas site in Michoacán could start around November. These two facilities could potentially complement other coil supplies in the United States between Texas and the West Coast, and Ternium is already offering some equipment in Houston, according to market participants.

“Ternium certainly benefits from the high prices here, but I don’t feel like a lot is coming in,” said a distributor from the south. “What they offered was very limited.”

Fastmarkets’ daily hot-rolled steel coil index, US fob mill, was calculated at $ 93.92 per cwt ($ 1,878.40 per short ton) on August 2. The price started in 2021 at $ 51.50 per cwt, hit $ 60 in February, $ 70 in April, $ 80 in May and $ 90 in early July.

Idling marches during the initial shock of the Covid-19 pandemic and other factory closures have squeezed the supply of coils at a time when demand was exceeding expectations. While some analysts have said that one of the unused blast furnaces or strip mills could possibly resume production, some steel executives prefer the more profitable equation of limited supply and return on. higher investment.

“Any new ability coming online will be a 2022 story,” said an Ohio Valley distributor. “I also don’t know how much of a story that will be, as the new volume still doesn’t compare to the capacity that US Steel or Cleveland-Cliffs might shut down to keep supply under demand.”

This distributor also predicted that much of the new capacity will be devoted to in-house production of value-added cold-rolled and galvanized products – “therefore, even fewer tonnes of HRC available for the spot or contract.”

Still, just because the next additional North American coil capacity isn’t as influential as expected this year doesn’t mean that prices won’t pull back before 2022. A pullback may still occur, but for different reasons. .

In their North American Steel Market Tracker, analysts at Fastmarkets MB Research noted that utilization rates at existing US plants are increasing and said plate prices “are near their peak.” In addition, “flat steel imports have also grown steadily against a backdrop of favorable price differentials. [and] should remain strong in the coming months.

However, maintenance outages will soon be required and service center inventories are nearing their lowest level.

“Demand from the auto sector remains strong,” Fastmarkets analysts wrote. “As the global semiconductor shortage diminishes, pent-up industry demand could pick up volumes in the spot market, supporting prices, with upside risks to our forecast. “