Too much production and not enough demand is driving U.S. steel prices down again, while there is concern over rising Chinese imports, analysts and industry experts say.
"I think we will hit bottom this summer," independent analyst Tom Stundza said on Wednesday. "The mood of the country is not all that terrific about manufacturing, there is no pickup in demand and there is unemployment.
"Ominous short-term demand forecasts probably will keep depressing prices ... especially if the mills delay reducing production," he said.
Charles Bradford, an analyst with Affiliated Research Group in New York, said steelmakers miscalculated demand recovery and brought back too much capacity at mills that had been idled after the 2008 recession.
"The decline in the hot rolled coil price may speed up if some of the mills don''t reduce output, with $550 a ton a possibility," he said.
According to Dahlman Rose & Co analyst Anthony Rizzuto, U.S. Midwest hot rolled coil steel is selling for $623 per ton -- down from $660 on June 30. But that is still better than $436 a year ago.
Stundza said hot rolled coil that was selling for $645 per ton in June is down to $620. "And I know you can get it from a mini-mill in the Midwest for $605, delivered in two weeks.
Since the 2008 recession, when demand for steel fell sharply, the industry cut production and has been slowly coming back as the global economy recovers. U.S. steelmakers are operating at around 73 percent capacity and U.S. Steel <X.N> recently reopened its idled Lake Erie plant.
Analysts point out that steel demand from manufacturing and construction has still not returned to 2008 levels despite growth in China and India for building infrastructure.
"There is an increase in imports and a buildup of service center inventories, plus the mills are continuing pretty strong production trends," said Stundza. Service centers buy steel directly from manufacturers and process it for sale to specific industrial customers.
"This year, there was no real second-quarter pickup; manufacturing was not as strong as expected," said Stundza, noting that manufacturing of appliances and autos, as well as non-residential construction, appear to be recovering slowly.
"For buyers, happy talk from the administration does not translate in to bookings for their products."
Stundza said suppliers have realized the first-quarter buying boost was little more than seasonal restocking and mostly by service centers waiting for business to explode.
Michelle Applebaum, an analyst with Steel Market Intelligence in Chicago, said uncertainty is driving the market. "Uncertainty inhibits import market share as domestic buyers become reluctant to commit to the three-month lead time for foreign steel.
"To the extent that domestic prices are relatively low on a global scale, we expect to see further declines in import market share."
But Applebaum said there was concern about the surge in Chinese imports undercutting domestic steel, despite recent changes in export tax rebates.
In June, imports of value-added sheet grades from China jumped 23 percent, mechanical tube was up 23.5 percent, line pipe rose ten-fold from May to June. Cold-rolled bar imports surged 71.4 percent from May and stainless steel overall was up 36 percent to the highest level in nearly two years, she said.
"To the extent that it was fear driving steel prices down so far over the past few weeks, we see that hope seems to be stemming the declines.
"Sustainability of these trends really depends on production cuts in China."