U.S. sheet prices have overall fallen further m/m after the initiation of a labor strike by the United Auto Workers union (UAW). The strike started slow and did not initially have much of an impact on sheet demand but has escalated as the union continues its negotiations with automakers. However, the market has likely reached a bottom as U.S. mills reduce capacity, extend planned maintenance outages, and push out their lead times. Meanwhile, sheet prices in Brazil and Mexico were also down m/m, with rising import levels now adding pressure for the former.

CRU’s second weekly assessment for HR coil fell by $9 /s.ton to $690 /s.ton, but is up by $27 /s.ton w/w. CR coil was also down m/m by $35 /s.ton w/w at $904 /s.ton, but like HR coil rose by $32 /s.ton w/w. HDG coil was little changed both m/m (+$8 /s.ton) and w/w (+$2 /s.ton) at $889 /s.ton.

The gradual escalation of the auto strike has meant that sheet demand from the sector did not evaporate suddenly, while demand from other sectors appears to be mostly stable—albeit seasonally weak. The key to the recent uptick in weekly sheet prices was how mills have reacted to the strike and its implications for demand. Roughly 1 Mt of annualized capacity was scheduled to undergo planned maintenance between September and October, and some of these have been extended following the announcement of the strike. At the same time, one blast furnace with 1.3 Mt of annualized capacity has been idled and another worth 1.25 Mt has been taken offline for at least 16 days.

While this reduction in capacity has helped keep the market tighter than it otherwise would be, mills also offered discounts for large orders. Many buyers were willing to take these as they sensed that prices were at or near a bottom, and there has now been enough buying activity for mills to push out lead times. As a result, multiple mills announced that they were targeting price levels for newly ordered HR coil between $700–$750 /s.ton. With these factors at play, it appears that future orders will need to be placed at higher price levels than we have seen in recent weeks. However, the success of future price hikes will depend on service centre inventory levels and amount of import arrivals once the strike ends.

We expect lead times to rise in October, decreasing mill willingness to negotiate on prices
LHS: Mill willingness to negotiate on HR coil prices, %
RHS: HR coil mill lead times, weeks

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The HR coil futures contracts at CME Group stopped falling and have turned higher as some furnace capacity is idled while hope remains for a quick end to the automotive labour strike.

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Prices on the CME’s HR coil forward curve have bottomed and turned higher. This trend change has come as some furnace capacity was idled due to the automotive labor strike. Additionally, higher mill asking prices have come about after a significant amount of low price transactions took place. Compared to last month, the forward curve for Q4 is now at an average of $764 /s.ton versus $737 /s.ton. Further, 2024 is now up by $24 /s.ton at an average of $835 /s.ton.  

These expectations of higher prices are aligned somewhat with our forecast in that we expect to see stronger prices once the automotive strike is resolved, and multiple integrated furnaces are idled. So far, we only have one furnace idled due to the strike, while the aforementioned low-price transactions have likely boosted market inventories through all of Q4.  

While progress seems to have been made with labor negotiations in the automotive sector, the strike is not over. Therefore, we should expect further price volatility. CME futures continue to offer both buyers and sellers the opportunity to lock in known prices that are both lower than in recent years and yet still higher than historical levels. Some hedging of expected production or consumption may ultimately make sense as part of a larger strategy.

CME forward price curve steps up on market optimism
LHS: CME HRC contract prices, $/st
RHS: Open interest, contracts, st

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