Negotiations over contract volumes for 2023 are underway in the US flat steel market, with buyers expecting steeper price concessions from steelmakers because of oversupply.

 

Multiple service centers are making headway in negotiations for 2023 steel contracts,with potential discounts to index pricing of 3-4pc,and some expecting they may be able to get 5pc discounts or more. The discounts are broadly because of oversupply in the US flat-rolled market. They are also deeper than 2022 contracts, which typically were struck at an unusually narrow discount in the range of 0-2pc.

 

For most of the year US steelmakers have had short lead times, indicating demand has been low for their products and giving buyers more choice. US hot-rolled coil (HRC) lead times are currently at four weeks, a relatively short period that indicates excess supply.

 

The oversupply has helped cut spot prices by more than half since the beginning of the year, with the Argus US Midwest HRC ex-works assessment down by 51pc to $776/short ton (st) on 4 October.

 

US steelmakers' attempts to correct the oversupply may be swamped by new capacity coming online.

 

Integrated producer US Steel has idled two blast furnaces that account for 2.9mn st/yr of raw steel production. The furnace outages could account for 731,000st of reduced raw steel production over the fourth quarter.

 

Even as capacity is idled, three new or expanded flat-rolled steel mills completed in 2022 could add upwards of1.34mn st of production a quarter.

 

Additionally, ArcelorMittal and Nippon Steel are adding a new 1.65mn st/yr electric arc furnace (EAF) to their jointly owned AM/NS rerolling mill in Calvert, Alabama, allowing that mill to reduce its reliance on foreign sourced slabs.

 

Given the lower prices and continued excess steel, some service centers are loweringtheir contract volumes by as much as 20-30pc as they expect prices and demand to remain volatile.

 

Contract negotiations usually begin in October, but last year they started mid-year amid chronic supply tightness that plagued the industry for much of 2021 and led to HRC prices rising to nearly $2,000/st. Contract terms were reduced compared to previous years, with index discounts of 0-2pc compared to normal discounts of 2pc or more, with some buyers reporting contract pricing at the index price plus an extra charge.

 

Most service centers are still working to get updated volume forecasts for next year from their customers. Many have complained that downstream forecasts for demand this year have been higher than actual demand, leaving service centers holding excess steel.