While the pricing spread between hold-rolled and cold-rolled has eased, a new pricing spread emerges. And the aluminum market makes some noise, while stainless surcharges face some uncertainty.
The Spread Between Hot-Rolled Steel vs. Cold Rolled Steel
As of April 24, the gap between hot-rolled and cold-rolled prices was $324/ton. This gap has narrowed from roughly $400/ton just a few weeks ago.
This improvement comes despite announced increases to base pricing for hot roll products from a few of the major mills. Cleveland Cliffs, for example, set at a minimum of $900/ton, while Nucor’s new spot base price for hot rolled coil is $835/ton for most of its mills. The lone exception is its CSI mill, which has a higher base price of $890/ton.
Despite these announced increases, Nick Web, Ryerson’s director of risk management, commodity hedging, is uncertain other mills will follow, suggesting a potential lack of widespread enthusiasm for sharp price increases seen in previous cycles.
Watch more from the April 2024 episode of Cup o Joe below:
The Spread Between Hot-Rolled Steel vs. Coated Steel
The current gap between premiums for galvanized steel and hot-rolled prices was approximately $400 as of April 24—a substantial increase compared to historical averages. This trend could mark a significant shift, with the market dynamics favoring value-added steel products.
Webb suggests that the widening spread between hot roll coil and value-added steel variants like galvanized steel could reflect robust demand in key sectors such as HVAC and automotive.
The recent price hikes in zinc—a primary component used in galvanization--has also contributed to the pricing spread. In early April, zinc prices rose by 6 to 8% in just a few days, indicating potential cost pressures on coating extras for steel.
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Manufacturing Growth, But at What Cost?
Global manufacturing data, specifically the PMI (Purchasing Managers' Index) from S&P Global, has been reflecting positive trends in recent months, notably with a shift towards more favorable conditions.
This is highlighted by improvements in manufacturing surveys, particularly in the United States and emerging markets like China and India. They mention an increase in the ISM (Institute for Supply Management) survey, indicating growth in new orders and production.
However, some in the market are concerned about rising prices and inflationary pressures associated with this growth. They point out that this could impact consumers' perceptions of the economy, despite not directly translating into the Consumer Price Index (CPI) that the Fed monitors.
Rising prices across various sectors, including stocks, gold, cryptocurrencies, and commodities like cocoa and coffee, can influence consumer sentiment and perceptions of market conditions.
Even though these price fluctuations might not immediately impact the CPI, they are likely to affect how consumers perceive the economy and their purchasing power.
Overall, the manufacturing outlook seems positive, but there are apprehensions about the implications of increasing prices on economic conditions and consumer sentiment.
Much Ado About Aluminum Prices
After nearly 18 months of subdued activity, the aluminum market has shown signs of revival lately, with prices experiencing an upward trajectory. Manufacturing optimism and a weakened dollar have contributed to tighter market conditions, which appear to be fostering a bullish sentiment in aluminum pricing.
Of significant influence is China's recent production cuts, which have amounted to approximately 10% of the total aluminum production in the country. These measures could further tight global supply, which would bolster aluminum prices on the London Metal Exchange (LME).
However, challenges could loom on the logistical front, particularly in the Midwest region of the United States. The recent Baltimore’s Key Bridge collapse disrupted transportation routes critical for aluminum distribution. Approximately 22% of aluminum imports to the U.S. are routed through Baltimore annually, underscoring the impact of this incident on supply chains.
The disruption led to a sharp increase in Midwest aluminum premiums, which reached a high of .1940/lb. in just a few weeks. While some believe the situation could be temporary, the immediate effect could mean supply tightness and inflationary pressures.
Traders in the aluminum market have shifted from a net short to a net bullish position. This sentiment shift, coupled with supply constraints and favorable market conditions, have the potential to propel aluminum prices into a new growth phase.
What does it all mean for aluminum buyers? Jeff Nodes, Ryerson’s director of supply chain, says, “The spike in Midwest ingot rates has been significant over the past month, up roughly .13/lb. on the cash spot rate with large spreads in the contango numbers as you look out into Q4 ’24 and beyond. We are unsure where will this take us moving forward … but the general volatility in ingot is driving us to monitor the situation very closely.”
Newly imposed U.S. and UK sanctions on Russian aluminum, copper, and nickel will prevent the delivery of metal produced after April 13 into LME and CME warehouses, with exemptions for existing inventories.
The U.S. is prohibiting imports of these metals from Russia, potentially leading to diversion of Russian metal to markets like India and China at discounted rates.
Despite not being directly affected, Russian metal constitutes a significant portion of nickel, copper, and aluminum in LME warehouses, impacting U.S. access to these resources. Short-term, this could result in prices spikes and material uncertainties, but the longer-term impact may be less substantial.
Two Converging Commodities
Two converging commodities could result in a tempered outlook for stainless steel surcharges in the months ahead. While chrome prices are pushing stainless steel costs higher, nickel prices are providing some much-needed stability.
Chrome Due to a variety of factors, most notably production challenges in Africa, chrome prices have made significant moves in recent weeks, rising from $1.44/lb. to $1.52/lb.
This could translate into an additional 3 to 5 cents per pound for 300-grade stainless steel and an upward effect on stainless surcharges through July.
Nickel. Following a brief surge, nickel prices have reverted to a familiar trend line. Although there was a temporary spike from $750/lb. to nearly $850/lb., nickel prices have since settled back to the mid-$700/lb. range.
Nick Webb, Ryerson’s director of risk management, commodity hedging, sees no compelling reason for nickel prices to spike significantly, considering the substantial Indonesian nickel supply entering the market, which acts as a limiting factor for price escalation.
Watch more from the April 2024 episode of Cup o Joe below:
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