With underlying demand for flat-rolled steel recovering much more quickly than expected in the second half of 2020 and gaining further momentum in the first few months of this year, continued tight availability and low inventories paint a bullish picture for steel demand and pricing throughout 2021, Steel Dynamics CEO Mark Millett said April 20.
"When coupled with historically low customer inventory levels across the supply chain, flat-rolled steel prices have been supported at historically high levels and customers are placing orders for immediate demand requirements," Millett said during the company's first quarter conference call with analysts. "They have not rebuilt inventories since the speculative risk associated with the accumulation of higher-priced inventory is a significant deterrent, even if it was available."
US hot-rolled coil prices broke through $1,400/st on April 19, setting another all-time high, as integrated sales were above $1,400/st with mini-mills at a minimum there for new sales.
The daily Platts TSI USHRC index increased by $30.75/st to $1,419.50/st, increasing by $75/st over the last two business days. Since the start of 2021, US HRC prices have risen $410.25/st and are up $950.75 compared with April 20, 2020.
From an end-market perspective, the automotive sector has experienced the strongest recovery, operating at very high production levels due to low inventories, coupled with strong consumer demand, Millett said. Automotive production issues caused by a global shortage of semiconductor chips have not had a significant impact on SDI's automotive order book, he said.
Demand from the nonresidential construction sector also remains strong and shows continued positive momentum—especially in areas that support online retail, computing activities and health care, specifically represented by construction of large distribution and warehouse facilities—with the strength in the market expected to continue through this year and into 2022, Millett said. Residential construction has also been strong, producing high demand for related HVAC and appliance products, and in the energy sector, solar is a "substantially growing market," he said.
Supply-side relief seen limited
While domestic availability is tight, Millet said current legislative steel trade policies, including the Section 232 tariffs, are expected to continue to moderate steel imports. He did not expect imports to see a large increase as global steel markets remain strong in China and Europe.
"You may get the arbitrage has become more attractive, perhaps on the surface, but the availability and the lead times are stretched out and very few people are going to want to take that speculative risk," he said.
Noting the US market is expected to see limited further capacity restarted this year, additional supply in the flat-rolled market will be limited until late in the year, he said.
SDI plans to finalize commissioning its downstream lines at its new electric arc furnace flat-rolled steel mill in Sinton, Texas, in June with some limited shipments beginning in July, he said. Initial volumes through the lines, however, are expected to be constrained due to the company's strong backlog and a limited availability of third-party substrate, he added.
The hot strip mill at Sinton is scheduled to be commissioned in September with shipments expected in Q4, Millett said.
As the company starts the mill it will be building process inventory and not all tons produced will be shipped, he said. He estimated shipments of 150,000-200,000 st in Q4. For 2022, the expectation is still to ship around about 80% of eventual capability, or between 2.2 million to 2.4 million st, Millett said.
Overall, SDI reported net income of $430.5 million on sales of $3.54 billion in Q1, up from net income of $187.34 million on sales of $2.58 billion in the year-ago quarter.
