Steel Pricing Spreads Converge

The holiday season is one that typically brings us all closer together. This year, that sentiment seems to also apply to steel prices, too.

As we head into the final few weeks of 2022, the pricing spreads between hot-rolled sheet and other steel products, which spent most of the year at historic highs, seem to be narrowing.

The one outlier remains plate. As of December 7, the pricing spread between steel plate and hot-rolled sheet remains more than $500 above the normal historic spread.

Some of that could be the result of the fact that hot-roll prices have decreased more than 50% throughout the course of the year, while plate prices have only dropped roughly 10%.

But could that gap be on the cusp of closing even further? One indicator came on November 30 when Nucor announced a $140/ton decrease to all plate products, effective immediately. Could this be indicative of more to come?

Typically, when one mill makes a move, others tend to follow. This was the case at the end of November when multiple carbon sheet mills announced a $60/ton increase, effective immediately.

“It is not common that steel mills announce pricing decreases,” says Nick Webb, Ryerson’s director of risk management, commodities hedging. “To me, that would suggest they may be starting to see things soften up quickly in face of new production capacity coming online ... we could perhaps begin to see the pricing spread between sheet and plate converge.”

Trending Towards Durable Production

Did you know that roughly 80% of world’s goods are moved by ocean freight? That makes the availability of shipping containers, called a TEU (twenty-foot equivalent), important.

In October 2021, the market was in need of finding more containers. At that time, according to the United National Conference on Trade & Development, the market was short roughly 4 million TEUs.

Fast forward to today—and we have a surplus of TEUs.

Is this a just an interesting anecdote or is it the sign of something larger at play? Webb sees it as both.

Besides being a function of the supply chain bottlenecks that we have witnessed over the past few years normalizing, he believes a surplus of containers could speak to the idea of local supply chains becoming more durable vs. efficient.

The ‘Durable vs. Efficient Production’ concept was first introduced in the June 2022 episode of Cup o Joe, which makes the argument that North American supply chains are moving away from outsourcing and bringing production closer to home. This comes in the wake of many well-documented supply chain disruptions that occurred throughout the COVID-19 pandemic.

And it further emphasizes the need for a near-shoring partner that can ensure it can be done in a timely manner and with as little disruption as possible.

For many, the hardest part may be that dynamic transfer from an existing durable supply chain to one with an unknown set of suppliers and vendors. Check out this video that dives into the value of a qualified partner network in streamlining that process.

A Second Squeeze on Nickel

By now, most are familiar with March 8, 2022 as the day that the LME (London Metal Exchange) halted trading of nickel after a short squeeze caused prices to rise 250% to over $50/lb. in a matter of hours.

Since that time, it has been a slow, but steady climb back for nickel prices. At the beginning of September, the price of nickel rallied, increasing 25% to around $11.50/lb. before falling back to around $10/lb.

Then came a roughly two-week stretch at the end of October, into early November where prices on the LME spiked roughly 43% ($13.72/lb.)

While not nearly as large at the jump in March, it once again showcases the volatility that comes with commodities markets and how quickly things can change.

It is also a friendly reminder that:

The price of nickel factors greatly into stainless steel surcharges, The December surcharge for 304 rose approximately 6.5 cents/lb. from November, while 316 was up 9.2 cents/lb. Early estimates for the January surcharge show that 304 could rise 8 cents from December.

Roughly 45% of that available nickel in the world is not traded on the LME. This nickel is considered as class 2 nickel. While this commodity has lower nickel content than class 1, the presence of iron makes it suitable to produce stainless steel.