As we enter the second quarter of the year, the narrative of industry demand and steel prices continue to intertwine. In the United States, industry demand tells a story of contrasts, with certain sectors seeing strong growth while others contend with weakening conditions.

The construction sector stands out as a beacon of strength, buoyed by infrastructure projects and non-residential construction activities. Auto sales also paint a positive picture, boasting year-over-year growth figures ranging from low single digits to double digits.

However, not all sectors share in this prosperity. Industries like boat and marine, household appliances, and non-defense aircraft shipments are witnessing declines of around 5 to 10% year-over-year, indicative of shifting discretionary spending patterns among consumers. 

The aerospace sector has faced challenges, with issues plaguing companies like Boeing and other aerospace companies contributing to a shift from growth to negative territory.

Amidst these divergent trends, the state of the steel commodity market adds another layer of complexity. Steel prices are on a roller coaster ride, influenced by factors such as supply dynamics and market sentiment. While recent data suggests a downward trajectory for steel prices, the futures market indicates a potential stabilization in the near future.

This volatility in steel prices reverberates across industries, impacting production costs and supply chains. Bid reductions on scrap prices by mills hint at the possibility of cheaper steel production; however, it remains to be seen whether those cost savings will be passed on to consumers.
         Source: Bloomberg

Hot Rolled and Cold Rolled Prices

Adding another layer of complexity to the story is the wave of price increases announced by steel mills in March. 

Nucor announced a new minimum base price for hot rolled of $825/ton and a new base price for heavy gauge hot rolled products of $1,025/ton.
Cleveland Cliffs announced a new minimum base price for hot rolled of $840/ton.

Furthermore, a significant widening trend has developed between hot roll and cold roll prices, suggesting a divergence in the market dynamics. While hot roll prices are experiencing a faster downward movement, cold roll prices are also decreasing, albeit at a slower pace.

The current spread between hot roll and cold roll prices is approximately $400, significantly higher than historical averages. 

This divergence indicates differing levels of impact across sectors, with those in the cold roll and galvanized market potentially experiencing less pain than those focused solely on the hot roll space.

Despite challenges, market participants appear cautiously optimistic, seeming to recognize the interconnectedness of various sectors and the potential for recovery.

Nickel Inventories Increasing

The state of the stainless steel market presents a mix of factors influencing pricing and demand dynamics. While not experiencing massive fluctuations, recent developments in the nickel market have injected some excitement.

LME nickel prices, a significant driver of stainless steel prices, have increased from around $7 to $8/lb. in recent weeks. While this price movement may seem modest historically, it will likely impact surcharges and could lead to a 4 to 5-cent/lb. increase for certain grades beginning in April.

The supply side of the equation remains relatively stable, with Indonesia continuing to ramp up nickel production, positioning itself as a dominant player in the industry.


Aluminum Awaits Trade Case News

The aluminum market appears relatively stable, lacking significant volatility in recent years. Prices for aluminum ingots have remained within a tight band, typically fluctuating between 95 cents and $1/lb. Despite this stability, little news or catalysts are expected to break this pattern in the near term.

While some speculate that prolonged low prices may lead to supply adjustments, such as smelter shutdowns, there is little indication of such developments.

For example, smelters have been operating within a range where profitability becomes challenging, typically between the ninety-cent to one-dollar range per pound. However, one mitigating factor has been the abundance of natural gas, driven by factors like global warming and increased production. The lower cost of natural gas has contributed to lower aluminum prices, making smelting operations more profitable.

On the premium side, Midwest Premiums have slowly declined (see below), hovering around 17 to 18 cents/lb. Recent trade case rulings involving nations like Turkey and Indonesia have had minimal impact on market sentiment, with no significant concerns about their effects on premiums or LME aluminum prices.

However, there is anticipation surrounding upcoming trade case announcements, particularly regarding anti-dumping duties. Concerns about possible European Union sanctions on Russian aluminum exist, particularly in response to geopolitical tensions. However, recent developments have diminished these concerns, with no additional sanctions imposed on Russian aluminum or nickel by the U.S. or Europe.

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