Axion Capital’s Gordon Johnson wrote this tidbit:
Despite announced price hikes announced by USX, Nucor and AK Steel prices for US HRC edged down again this week by $10/ton (i.e., -2.1% w/w, or -66.8% annualized). Separately, there are a number of calls today that high met-coal prices will push scrap prices up, thus favorably impacting US HRC prices.
Yet, with: (a) Big River (1.6mmtpa) set to come on line in the US in C4Q16, (b) ArcelorMittals’ No. 3 blast furnace (1.6mmtpa) at Indiana Harbor ramping since mid-Oct, (c) auto demand apparently on the decline (based on SAAR data), and (d) US construction spending, which turned negative at -0.3% y/y in Aug. ‘16, or the first monthly y/y contraction since Jul. ’11 (i.e., ~5 years), we see demand as the biggest issue affecting the US steel market. Thus, if our hypothesis is correct, lower margins at steel mills will not solve the problem (i.e., if there is no demand, steel mills will find it tough to push their gross margin woes, born out of higher input costs [i.e., met coal], onto their customers).