Posted on 23 Dec 2022
US steel mills could face squeezed margins in 2023 if scrap prices increase and other metallic costs remain elevated.
Increased raw material prices have combined with lower shipments and steel prices to squeeze mill profits, with EAF steelmakers Nucor and Steel Dynamics (SDI) and hybrid steelmaker US Steel blaming the three factors to differing degrees for decreased profits in the fourth quarter, according to their most recent respective quarterly guidance released this month.
Since the beginning of 2022 through 20 December the spread between #1 busheling scrap Midwest, a high quality grade of scrap used by electric arc furnace (EAF) steelmakers to produce flat-rolled steel products, and hot rolled coil (HRC) steel has plunged by 64pc to $377/short ton (st).
During the same period #1 busheling prices have fallen by 41pc while HRC prices have fallen by 56pc. A recent $30/gross ton (gt) price increase for #1 busheling helped prop up a $60/short ton (st) flat steel price increase announced by many of the major US steelmakers in late November and reverse price slides for both products that extend back to April.
In tandem with this, the price of pig iron cfr New Orleans, a key metallic feedstock used by EAFs to increase the quality of their steel, has only declined by 14pc since the beginning of the year.
Over the first half of the year, when the HRC #1 busheling spread remained comparatively wide, Nucor earned $4.66bn in profits, followed by SDI with $2.31bn and US Steel with $1.86bn, all up from the sane prior year period.
While flat steel prices have recently increased, additional production coming on line in 2023 is likely to limit the ability for prices to rise significantly higher.
As it stands, market participants expect the domestic January ferrous scrap trade to rise supported by slowing scrap flows and a bump in demand, while higher production costs and limited availability could keep pig iron prices firm.
If these raw material costs rise, steel companies could experience much tighter margins and thinning profits.
Source:Argus Media
