Steel prices are starting to bounce back after last year’s devastation in the energy market, major destocking, and weak exports out of China. Hot-rolled coil (HRC) sheet prices have rallied to about $370 per ton over the last few weeks, while cold rolled coil (CRC) prices are nearing $500 per ton. Based on these rallies and other positive data points on steel prices, Credit Suisse analysts are raising their estimates and see the U.S. as being the market with the sharpest acceleration in volumes in the coming months.

Steel Prices Rally As U.S. Volumes Expected to Accelerate: Credit Suisse

U.S. steel prices rebound

Analyst Curt Woodworth and his team said in a March 23 report titled “That Escalated Quickly” that they expect U.S. HRC steel prices could reach $480 per ton, while CRC prices may hit $640 per ton by the end of the second quarter. However, they expect this trend to reverse and edge lower in the second half of the year as the U.S. steel supply chain normalizes. They believe that this year could bring a sharp increase in domestic flat rolled volumes due to restocking, which they estimate at 2.5 million tons; gains in import share, which they also estimate at 2.5 million tons; and growth in end demand, which they estimate at 500,000 tons.

steel prices

They expect the steel sheet market to continue operating at a deficit until the fourth quarter because they don’t believe idling domestic blast furnaces will be reactivated and note that import liquidity is extremely restricted as a result of trade cases.

Turkish scrap, Chinese steel prices also rally

HRC and CRC steel prices aren’t the only ones to rally either as the Credit Suisse team notes that CRC steel prices for CIS and China climbed by $60 to $80 per ton. They add that many mills located outside the U.S. are also holding back on export quotes until steel prices in Asia settle. However, they say domestic margins in China have recovered, and Asian steel producers are gaining back some of the share they lost thanks to recent trade protection guidelines.

These developments have, in turn, shrunk steel liquidity in the U.S. even more. Woodworth and team added that their conversations with steel importers indicate that lead times for value-add sheets for Asian tonnage are up to five or six months.

Steel prices now normalizing after a hard 2015

The analysts say the current rally in steel prices is actually just a “normal rebalancing following a recessionary climate in 2015.” They add though that the test of their view will come in the second half of this year when they’ll be watching to see if China’s infrastructure and property FAI is able to shift from a cyclical headwind over to a tailwind.

Currently their top picks in the steel market are United States Steel and Steel Dynamics because they have the highest leverage in flat rolled steel. The Credit Suisse team points out that every 5% in volume and $50 per ton move in average selling price for U.S. Steel represents about $600 million in EBITDA. They raised their price target for U.S. Steel from $19 to $22 per share and their price target for Steel Dynamics from $25 to $27 per share based on the recent move in steel prices.

Screenshot_3