US steel sentiment remains bearish as uncertainty looms over the demand outlook: survey

The sentiment for finished steel prices continued to slide as the November scrap buy week was underway, according to the most recent S&P Global Commodity Insights US steel market participant survey.

In the survey of US producers, distributors, traders, and end-users, 87.1% expected finished prices to fall further during November, up from October, where 74.2% were bearish, with only 3.2% expected prices to increase even as the domestic mills continued with outages and idled furnaces to curb supply output as demand has weakened in the fourth quarter.

As trade begins for November delivered scrap prime grades fell by $30/lt by the mills and shredded scrap prices moved lower by $20/lt so far as HMS scrap exports have taken out the September lows.

Both the domestic and export markets have been trying to find a bottom despite seven consecutive months of falling domestic scrap prices including November, which has kept the pressure on finished prices, especially across long products despite fabrication still seeing a backlog of demand.

Most respondents remained bearish because of the rising interest-rate environment and inflation slowing economic activity, which has deteriorated sentiment further downstream as well as mill demand for scrap purchases based on order books and planned outages and supply cuts into the end of the year.

Views on inventory changes again remained mixed as some long product fabricators and distributors were starting to see inventories move up as mills see inventories remaining steady.

"Year-end inventory will limit buys from the mills but supply remains tight," a raw materials trader said.

Some service centers have been inquiring in the spot market looking to take advantage of discounts offered by mills for larger tonnage as others have been on the sidelines.

The majority of raw-materials-market participants expect inventories to remain steady month on month, with 100% of those expecting stable or slightly drawing inventories. On the flats side, 72.7% of those were expecting supply to tighten. On the whole, 29% of all participants expect inventories unchanged in November compared with 61.3% in October.

Around 80.7% of all those surveyed expected inventories to remain level or shrink.

The Platts TSI US hot-rolled coil assessment fell under pressure in October, falling $125/st to last settle at $655/st Nov. 7, according to S&P Global data, as demand outlooks remained mixed, but felt finished prices could fall further amid the seasonal slowdown in demand.

Long product fabricators and distributors see prices declining slightly, continuing from the previous month. Long products mills continued to see slightly weaker order books as customers continued to try and draw down inventories, especially rod users. Many wire drawers are expecting another few weeks of destocking then running into December which is historically a decline in orders.

"We are expecting another adjustment lower from the domestic producers to reflect current imports," a distributor of longs said. He added that expected demand to remain relatively weak into the holiday season.

Some longs product distributors even see prices falling more than 5% in November as scrap prices will fall again.

Some buyers of wire rod and rebar were expecting domestic mills to again move prices, especially on the wire rod side. Rebar mills continued to monitor imports to remain competitive, as foreign offers remain limited but at lower levels, as higher energy prices have increased conversion costs pushing at or above the $300/mt level after the last increase in power costs to those mills. Market participants expect imports to remain limited throughout year-end.

According to users, inflation has been slowing demand for long products, especially for residential construction.

Distributors of rebar in the Midwest and Northeast said they could see another small adjustment in the quarter as demand shifts because of seasonality.

Scrap prices were again in focus, with 77.4% of participants expecting prices to fall, and of those, only 6.5% expected a decline of 5% or more during the buy week.

Finished steel production expectations tightened, as 51.6% of participants expected it to remain flat, compared with 32.3% in September, with 32.3% expecting draws. Raw materials traders and distributors of longs and flats were mainly seeing production lower.

Mill margins in the US started the year under pressure, with rising input costs and the continued push to utilize more scrap in furnaces and incorporate more obsolete grades in the mix. Mills have been able to hold margins but they could give as spot prices move lower, although scrap dealers and traders said that the shredded scrap premium to prime grades is not sustainable past November.

Buyers still remain focused on drawing down inventories across all products into the end of the year, which has kept them out of the spot market which shorter lead times from the domestic mills have allowed versus longer lead times for imports, with falling scrap prices mills have tried to remain competitive with import offers as downstream demand from new projects has not warranted additional spot buys or bookings of larger imports along with the rising costs of financing material and holding large inventories.