Despite concerns over a potential shortage of scrap due to increased use of electric-arc furnaces, Steel Dynamics' CEO has stated that the company has reduced its use of prime scrap.
appeared decidedly bearish throughout June. HRC prices saw the largest month-over-month decline, dropping nearly 16% before finding a bottom at the start of July. From there, HRC prices saw a modest $1/st increase during the first week, as steel prices started to move sideways. Prices would need to breach monthly resistance levels to suggest a trend shift, but as the market remains in backwardation, downside risks remain.
Steelmakers argued that low service center inventories would force hesitant buyers to return to the market despite historically short mill lead times. The average lead time for HRC prices fell to three weeks in mid-June. However, by July, mill lead times for flat rolled steel started to climb again. The unexpected July 1at SDI Sinton tightened supply enough to push the average HRC mill lead time up to 4.5 weeks.
SDI Sinton’s closure comes at what seems to be an opportune time for steelmakers already plagued by an apparent oversupply. Aof North American automakers started planned maintenance outages at the end of June. These shutdowns will extend through August, which will translate to lower overall steel demand from the sector.
SDI Sinton’s closure has already caused a sharp decline in the capacity utilization rate for domestic raw steel production. The ramp-ups of several mills saw the overall capacity utilization rate reach 78.1%, its highest this year, on June 24. However, by July 8, the rate fell back to 75.2%, the lowest since mid-April.
Still, tighter supply gives steelmakers increased control over the market. This comes as a growing number of U.S. industries continues to see slowdowns in demand. Steelmakers may even attempt to narrow production levels further upon the return of SDI Sinton to prevent prices from returning downward in search of a new bottom. However, for now, the unexpected outage, on top of a modest increase in mill lead times, has proven enough to flatten steel prices in the short term.
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