Steel Price Forecast and Market Outlook

Prices have exploded in the United States with the market rapidly pricing in the Section 232 tariffs. Lead times are far into the summer and allocation has already started. Prices will peak in the second quarter at levels not seen since the spike in 2011. As idle capacity ramps up and availability improves, prices ease in the third quarter, but not much. By early 2019 US prices are stabilizing, but at very expensive levels. Flat prices are about 25% above prior estimates, and long products are 18–20% higher.

Chinese prices are easing slightly, a month ahead of our schedule but in line with our narrative. Prices were higher than justified by fundamentals. As the Chinese government signals it will not stimulate in 2018, holders of futures contracts should start to liquidate. Momentum in European markets is also fading, with the next move expected to be down. Supply disruptions are ending; high prices attracted imports, with the supply/demand balance now pointing to falling prices in the second half of the year.

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Supply Forecast

  • Steel supply tightened across late 2017, although it is not in deficit. Disruptions hit production in Europe, while buyers in the United States faced higher prices for imports that necessitated redrawing some supply chains and then further disruption from the Section 232 tariffs. The Chinese narrative says that supply is tight because of pollution-related capacity closures. 
  • Service centers have decent inventory, and lead times are normal to slightly extended. The change will come from falling import tonnage. High prices in Europe and Asia are already causing imports to decline.
  • European supply is genuinely tight late in 2017, but should improve in coming quarters. Surprising demand growth in Europe outpaced mill production. A shortage of graphite electrodes is disrupting European production, although the impact is much greater on bar steel than on sheet.

Demand Forecast

  • Steel demand is up globally, but is certainly not booming. Automotive, construction and energy investment are growing but at a modest pace.
  • No demand sector is growing so fast as to truly pressure steel availability. If there are shortages, they would generally be from a supply disruption, not from a boom in demand (with the exception of higher-quality bar for drilling activity, mostly in the United States).
  • The second quarter of each year is typically the strongest for steel demand. Construction in all major regions is kicking off, feeding straight into steel demand. With US president Donald Trump's pledges of infrastructure building, construction steel demand should be strong.

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