When it comes to steel, April is ''the cruelest month''

The London Metal Exchange is closed today. Yesterday’s LME ended on a strong note with all base metals above Wednesday’s late close. Both copper and lead traded at fresh five-month highs. In New York, the May contract closed Thursday at $2.071/lb, up 7 ¼ ¢. On Wall Street, equities got a hefty early boost from Wells Fargo & Co surprise profit announcement that was far above analysts’ estimates, offering evidence that the credit and lending markets are improving. Equities closed with solid gains. Next week’s anticipated Industrial Production Index for March will be released and we’ll be taking a close look at the metals-intensive manufacturing component of IP.

On the gold front, GFMS’ just-published Gold Survey 2009 sees $1,000/oz as an easy target in the coming months with the potential to breach $1,100. Their bullishness is traced to the expansionary fiscal and monetary policy in the U.S.; the reluctance of central banks to raise interest rates; and questions concerning the relative strength of the dollar. GFMS warns, however, that time is required for inflationary pressures to build, so gold could visit sub-$900 prices in the short term.

Taking a look at the current markets for steel and ferrous scrap and one would have to agree with T.S. Eliot that April is indeed the “cruelest month” (so far, anyway). Our sources are reporting No.1 HMS in the range of $110-$125/gross ton, delivered, with shredded and No.1 bushelings at $140/ton and $145/ton, respectively. If correct, the expected decline in scrap prices this month is proving to be greater than earlier thought. AMM.com is reporting regional declines of $40 - $45/ton for No. 1 bundles and bushelings.

This week’s Scrap Price Bulletin is showing its No.1 HMS composite at $141.50/gross ton with shredded figured at $169.50 and Chicago bushelings at $184.50. (For some nostalgia, a year ago the HMS composite price stood at a lofty $499.17. Ah, those were (some of) the days.

So, are we seeing the bottom for scrap prices? We note, for example, that AMM.com is tentatively reporting slightly higher prices for Midwest bundles and bushelings.

Latest export prices placed HMS earmarked for Turkey at $230/mt cfr, with shredded said to be commanding $235/ton. The Rotterdam market for HMS figured @ $200/metric ton, per Platts. Several sources have commented that current export offers are “substantially” higher than domestic prices on both coasts and this, it is reasoned, could be the catalyst for higher domestic prices – and sooner than later.

Moving on to finished steel, the spot market for HR coil looks weaker still. The Platts’ Midwest f.o.b. spot price for HR is now figured around the $400-$420/net ton mark with current mill capacity utilization in the low 40% range. We’re reminded that mills are entering the fifth-consecutive month of production below 50% of their capability. Earlier this week, Steel Market Update placed the range for HR at closer to $410-$460/ton. Last month, Purchasing magazine’s Midwest reference price (for delivered steel) was pegged at $471/ton. It wasn’t all that long ago that many believed that $500/ton was about as low as the HR market would go.

We understand that Deutsche Bank also recently lowered its outlook for the domestic steel industry. They’re now calling for U.S. steel demand to fall by 17% compared with 2008 with mill operating rates pegged at 65% vs. 84% in ’08. Total North American steel shipments were also forecast to register declines of 25% this year compared with last year.

Along with their lower consumption and shipment forecasts, Deutsche Bank sees U.S. hot-rolled (HR) sheet in coil prices averaging $467/net ton this year vs. last year’s average that it placed at $858/ton. Goldman Sachs reckons that domestic HR prices will bottom out at $400/ton “sometime in 2Q 2009” but little recovery is seen till “late 2009.” Finally, UBS in not looking for HR prices in North America to reach above the $500 mark till 2011. Yipes!