After a brief rebound in 2014, we have experienced a significant drop in steel prices in 2015, which doesn’t appear to be abating going into 2016. Both cold rolled and hot rolled pricing dropped significantly this year. Cold rolled year-over-year pricing is estimated to decline 25 percent for domestic steel and 26 percent for imported steel. The story is even more accentuated on the hot rolled side, with domestic pricing down 31 percent year over year for 2015 and imported pricing declining 31 percent as well.
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We don’t see pricing trends improving in the near to midterm. The domestic commercial construction end market demand is good, which likely would drive up prices, but it’s not enough to offset the global macroeconomic issues driving down the pricing. The hard reality is China economic growth is slowing but steel production isn’t being cut fast enough to offset the price drops. The low-priced steel is hitting the market, holding down prices.
These pressures could unsettle a domestic steel market, and construction may benefit in the short run from reduced pricing, the turbulence in the market will undermine long-term success. The silver lining to the glut of steel and low-prices is the Federal government is moving toward anti-dumping legislation, which may prove to improve the domestic market. Careful management of production by domestic steel mills is also working to keep the market steady.
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Kathryn I. Thompson is a founding partner and CEO of Thompson Research Group, Nashville, Tenn. In addition to managing and setting the direction of the firm, Thompson also serves as director of research. She brings more than 15 years experience analyzing, modeling and advising mutual funds, hedge funds, pension funds and private equity investors.
