US Steel Manufacturers are Raising Inventories Amidst a Price Drop
- 04-Aug-2022 8:00 PM
- Journalist: Nicholas Seifield
Florida: US Steel market has witnessed a price correction since May 2021 amidst the rising inflationary pressure and fed rates. Since February 2022, US steel prices have been under significant pressure due to weakening downstream demand, cautious service center purchasing, and persistently high supply. However, in the spot market, US steelmakers are expected to increase output through the rest of the year, even though many market participants expected a tightening of supply to stem a price decline.
As per sources, signs of a recession have surfaced, including two consecutive quarters of sluggish growth and dwindling manufacturing and housing indicators, amid fears of being saddled with overpriced steel inventories that have kept many buyers on the sidelines. Market participants were keenly observing steelmakers such as Cleveland-Cliffs, Nucor, Steel Dynamics (SDI), and US Steel for signs that they would reduce production to reduce market oversupply and support prices. Instead, steelmakers indicated that they expected demand to remain stable or increase, citing persistent backlogs. The companies will ramp up at sub-optimal flat-rolled mills and restart other mills that had been shut down for maintenance, bringing on additional supply.
SDI's Sinton, Texas, the mill has recently run at 70-80 percent capacity, but it experienced multiple production cuts and power supply issues in July, reducing output. From May 2021 to June 2022, the US steel capacity utilization rate, which includes all steelmaking assets such as flat, long products, and others, was well above 75 percent. Steelmakers believe that an 80 percent utilization rate is the most profitable level.
According to the ChemAnalysts, "The Steel assessment fell to its lowest level on August 2, when steel prices rapidly rose out of the COVID-19 pandemic-induced price bottom because the US steel and manufacturing industries shut down at the start of the pandemic. Furthermore, prices have fallen by roughly 50% since 2022, owing to market oversupply following steelmakers' overshoot in the fourth quarter of 2021. Since then, service centers have been working to reduce their inventories, fearful of being overstocked as steel prices can sometimes drop by USD 110/MT or more in a week."