OREANDA-NEWS. February 09, 2015. US steelmakers have been singing the blues so far in 2015 as prices for sheet steel, which represents half of all American steel sales, have collapsed with no turnaround in sight.

Factors that are usually in their favor at this time of year are absent. Freezing temperatures normally boost prices for scrap – a major steelmaking input – thereby supporting either mill price hikes or the maintenance of the pricing status quo.

It has been cold – with temperatures in the teens – and infamously snowy in the major scrap-producing regions of the US, the Midwest and Northeast, but scrap prices are down \\$80-100 a long ton from a month ago. That’s a 25% reduction in just a (cold) month’s time for shredded scrap, a key grade.

The other absent factor is a seasonal upswing in orders. Hope often springs eternal in the first quarter as steel buyers place orders anticipating projects in the new year. Yet at this moment, most steel buyers are sitting on their hands, waiting for steel prices to hit bottom as bloated inventories make their way through the market.

Hot-rolled coil (HRC), the bellwether sheet steel product, is approaching \\$500 a short ton for large orders and the price for smaller volume orders, within the Platts volume specification for price assessment, is at around \\$540/st, down from \\$600/st just one month ago and around \\$680/st six months ago.

When it comes to sheet steel supply, the problem, in a word, is inventories – overbuilt ones. And that \\$680/st price tag for HRC last summer is a major reason they are overbuilt. The US HRC price was \\$100 to \\$150/st higher than prices in other major world markets and US buyers turned to imports.

Often the disparity in global steel prices works its way out via imports from low-priced markets to high-priced ones, and the US was definitely the star in this regard. Seeming to defy gravity, though, US mills were able to keep their prices far above those of their international counterparts for a long time and it could be argued that they are paying the price now by having attracted loads of imports.

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HRC imports averaged 285,000 metric tons a month in the first half of 2014. The monthly average in the second half was 366,000 mt – and the second half is not usually the strongest. Usually, steel buyers cut back on purchases as the year winds down, but the fourth quarter was strongest of all quarters for HRC imports last year, averaging 382,000 mt/month.

Much of this Q4 steel was coming into a US market that was already on the decline. To add insult to injury, there were licenses to import about 476,000 mt of HRC in January, ordered when it must have been pretty clear the market was heading down.

Perhaps the only way to explain why the steel keeps coming in, presumably ordered when the market decline was already occurring, is that US buyers who paid the world’s highest steel prices for much of last year needed to get a hold of some cheaper steel to lower the average cost of their inventory.

On the demand side, a key factor was the collapse of the oilfield tube market as the global price of oil plunged. Producers of these tubular products mostly make it from HRC. While HRC goes into many other applications, lack of purchasing from pipe and tube makers was enough to put a damper on the market.

Otherwise, sheet steel demand has been pretty good.

Despite the myriad ways of looking at supply and demand in the US steel market, it could be argued that it was the international influence that caused the bottom to fall out – much lower world HRC prices and the collapse of world oil prices that impacted a key end-use market.

It’s not really that simple, but if the blues US mills are singing happen to be that old Eddy Arnold chestnut “Make the World Go Away,” you can hardly blame them.