Pittsburgh—The price spread between hot-rolled coil and No. 1 busheling prices in the US remains at the highest level on record, driving mill profitability through the first three months of 2021.
The S&P Global Platts TSI HRC weekly average price is currently $825/st above the Platts No. 1 Busheling assessment, surpassing the previous record spread of $640/st in November 2008, and well above the most recent high of $555/st at the end of June 2018.The spread in 2008 was a result of scrap prices plummeting more quickly than finished steel prices prior to the global financial crisis. The spread in 2018 was caused by a runup in finished steel pricing while scrap prices remained relatively stable. Now in 2021, scrap prices have seen significant appreciation, but have not been able to keep pace with the runup in HRC prices to record highs as supply constraints and long leads times in the near term have supported spot HRC prices.
"Everybody's been benefitting this round as opposed to 2018 when the mills ran away with it," said one scrap supplier.
"Producers here are realizing good spreads and good margins," said one mill scrap buyer. "The spread between HRC and scrap has definitely decoupled," agreed another.
Mini-mill steel producers SDI and Nucor have made note of the margin expansions driving record profits in recent company guidance.
"First quarter 2021 profitability from the company's steel operations is expected to be significantly higher than sequential fourth quarter results, driven by flat roll metal spread expansion, as strong demand continues to support flat roll steel prices," said SDI in its Q1 guidance released March 17. "The company believes this momentum will continue, resulting in even stronger second quarter 2021 results. The company expects first quarter 2021 adjusted earnings... could represent a record earnings quarter for the company."
"March is expected to be the strongest month of the quarter," Nucor said in guidance released March 16. "Margins have expanded since the beginning of the year, a trend we expect to continue into the second quarter. We believe earnings in the second quarter of 2021 will likely set a new record for quarterly earnings."
Additionally, improved margins are being reflected in the stock market performance of major producers. Since the HRC to No. 1 Bushelling weekly average spread pushed to record highs for the first time in late December 2020, US Steel, Cleveland-Cliffs, Steel Dynamics Inc. and Nucor's share prices have all appreciated more than 15% in just over a single quarter of trading.
Steel stock appreciation from Dec. 24, 2020
CompanyIncreaseNucor50%
SDI38.5%Cleveland-Cliffs16.7%US Steel42.9%It remains unclear how long this price environment will last. Goldman Sachs forecasts US HRC prices at $850/st and $750/st for Q3 and Q4 respectively. KeyBanc kept stable its 2022 estimated earnings per share for SDI, less than half of SDI's 2021 estimated EPS, "reflecting normalization in sheet metal margins (vs. excessive 1H21 levels)," according to a report released March 21.
"Last December I was projecting that March or April 2021 it would start to fade... Now I don't see it fading until July or August at the earliest," said the scrap supplier.
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