The past twelve months have been a turbulent period for everyone involved in the US stainless steel market. In a dramatic shift, the unprecedented decline in steel demand caused by the pandemic was replaced by strong demand, inventory shortages and soaring prices.
In the last few months of 2020, new orders in many industrial sectors have increased. Therefore, the factory began to increase production. The IHS Markit US Manufacturing Purchasing Managers Index rose to 59.2 in January, the highest level since the indicator was launched.
The unexpectedly rapid recovery of demand leads to bottlenecks in the supply chain. In addition, the rebound in activity has left manufacturers in the automotive, white goods, and agricultural sectors lacking materials and parts to maintain their production plans.
The surge in demand in the past few months has led many US stainless steel market participants into uncharted territory. After several months of destocking during the worst period of the pandemic, demand quickly increased, which quickly exhausted distributors’ inventories. This is most noticeable in the 300 and 400 series coil products used in the automotive and white goods industries.
Many stainless steel buyers report that their inventories are at their lowest levels in years. The extremely long lead time provided by American steel mills caused customer supply delays. In addition, local steel manufacturers rejected requests for additional materials because they tried to manage their orders.
The recent severe weather conditions in parts of the United States have further disrupted already troubled supply chains. Companies in the hardest-hit areas said they had lost a week of normal business activities.
High container costs, coupled with ongoing Article 232 tariffs, continue to hinder imports. However, with the domestic market being so tight, US buyers are increasingly interested in sourcing materials from overseas suppliers, even if the cost is higher than the local supply.
Supply-related bottlenecks are pushing up prices throughout the supply chain. Steel manufacturers are facing rising input costs, as evidenced by the rising alloy surcharges. Due to the latest round of electric vehicle hype and supply concerns, daily nickel prices continue to strengthen.
In the past few weeks, global logistics difficulties, especially shipments from Chile, have caused molybdenum prices to soar. In addition, the recent increase in the value of the chromium spot market may lead to a substantial increase in the number of contracts in the second quarter. In addition, the price of stainless steel scrap is also rising.
In addition to the increase in alloy surcharges, US stainless steel producers have also lowered price discounts three times in the past six months. Therefore, the transaction value of stainless steel cold rolled coil is currently at its highest level since July 2018.
The shortage of materials in the distribution department allows sellers to pass on these increases to end users. Companies with high inventories report that now is the time to make huge profits.
Further rise on the horizon
Driven by rising raw material costs, alloy surcharges may increase further in the next few months. In addition, local steel mills are expected to further reduce the discount level applicable to basic data. This is expected to cause the transaction value of 304 grade cold rolled coil to climb to a nine-year high in the second quarter of 2021.
Short-term shortages are expected to remain a feature of the market, especially for ferrite materials. ATI's withdrawal from commercial coil production will be postponed until the end of this year. However, according to reports, the company currently only produces outstanding contracts.
The U.S. government and President Biden are under increasing pressure to modify or cancel Article 232 tariffs. Any adjustments may lead to increased import competition and lower domestic stainless steel prices. Source: MEPS