The beginning of 2010 is painfully similar to a year which many in the steel consuming community would rather forget – 2008. Steel Market Update went back in our archives to take a look at what we were writing about during January 2008.
“…The stage is set for price increases worldwide due to higher scrap, iron ore, coke and pig iron costs that will be passed on to the mills. These higher costs are predicted to add $60 to $100 U.S. dollars per metric ton ($2.72/cwt to $4.53/cwt) to costs of blast furnace steel without vertical integration… In short – look for higher prices here in the United States market – even in light of poor steel consumption due to our housing and manufacturing recession – during the next 6 to 12 months….” (SMU January 2, 2008)
At the same time zinc spot prices during 2008 actually peaked during the 1st Quarter at approximately $1.25 per pound and then declined for the balance of the year. Zinc spot prices for 2010 just peaked at $1.2124 on January 6th (see following article).
In January 2008 #1 Busheling scrap was trading at $406.67 per long ton and prices continued to surge with peak pricing of $866.14 per long being achieved during July 2008 (Source: AMM). So far this January #1 Busheling is trading in the Chicago market at $390 per long ton – uncomfortably close to the $406 of 2008….
Demand – 1 Big Difference between 2010 and 2008
The domestic steel mills were running at essentially full capacity (80%-90%) in January 2008 as compared to the latest projected raw steel capacity utilization rate of 63.9% for the week ending January 9, 2010.
The housing market was clearly already in recession as 2008 began and the recession in housing continues unabated into at least the 1st Half 2010 (see following HARDI/ITR article). Housing starts (single and multi-family) were 906,000 units during 2008 (Source: U.S. Census Bureau). 2010 is forecast to be below 600,000 units.
Commercial construction had a solid year during 2008 and was one of the bell weathers for the U.S. economy at that time. 2010 is forecast to be a very poor year for commercial construction (see HARDI/ITR article and AIA article below).
Automotive – North American auto and light truck production was 12.64 million units during 2008 while 2009 came in at 8.55 million units (Source: CSM Auto). 2010 auto and light truck production is forecast by CSM Auto at 10.8 million units – 2.25 million units better than 2009 but still 1.84 million units below the 2008 production rate. (See CSM Auto article below)
Oil & Energy – During 2008 we had a barrel of oil trading well over $140 – so far, during 2010, oil is hovering around $80 a barrel and the energy sector of the economy is starting to stir but a long way away from the 2008 boom.
So, how far can a supply-side (mill driven) and commodity-based scenarios drive prices? We will need to carefully watch the weekly statistics coming out of the AISI regarding raw steel production – but, more importantly we need to watch real lead times at the domestic mills.
SMU mentioned last week the “weak link” product at this time is non-automotive galvanized. Lead times for galvanized steel are fairly short with mid-February tonnage being available at Severstal (Columbus) and a couple of the conversion mills.
Steel Market Update will continue to evaluate lead times, pricing trends, market momentum and sentiment as well as our price indexes for hot roll, cold roll, galvanized and Galvalume. We encourage all who are invited to please participate in this week’s Market Survey.