Have we finally called the bottom for hot-rolled sheet steel in coil?

Regarding the $20-$30/net ton price increases announced last week by AK Steel, ArcelorMittal and Nucor, our friends at Steel Market Update liken it to “…a dog marking his territory – the mill pricing had gotten to a level no mill could support…” At any rate, the industry continues to sort through the implications of this long awaited price increase given the slowness experienced in the manufacturing sector.

Platts has its Midwest HR coil f.o.b. reference price at $380/net ton, unchanged…this week’s Steel Business Briefing “Steel Index” HR reference price is $382/ton, down $2.00…Steel Market Update reckons the current range to be $360/ton-$400/ton but with scant evidence that orders are being placed at the new pricing.

Goldman Sachs reminds us that domestic steel prices have fallen for 10 consecutive months since May 2008, with HRC dropping to $392/ton - the lowest price since January 2004. The firm believes that what we’re now seeing is a cyclical bottom and they now expect prices to stay range bound before slightly improving later this year. KeyBanc Capital Markets is also of the opinion that indicators increasingly point to pricing upside in flat-rolled products into the June-July time frame as service centers begin to gradually re-engage the market.

Looking at the bigger picture for steel, Michelle Applebaum Research believes that firm scrap prices, coupled with higher – and rising – global finished steel prices, will be a big help for domestic steelmakers. China’s Baosteel, for example, just announced a 12% price increase for HR. They further believe that base prices for both long products and flats are likely to lift another $20/ton – following $20/ton price hikes for long products and plate for June shipments and $20-30/ton sheet price hikes for July – all this, they contend, is based on strong global pricing trends and a hoped-for reduction in imported steel in the coming months. So, have we finally called the bottom for HR?

As for domestic ferrous scrap this month, American Metal Market is reporting an “unchanged” market characterized by a “modest level of mill buying…” Other sources are showing a $2/gross ton decline for No.1 bushelings. Exports, meanwhile, are not lending much additional support. The Scrap Price Bulletin No.1 HMS (heavy melt scrap) composite price was placed at $184.50/gross ton delivered, down $1.67 from a week ago…dealer bundles were unchanged, and shredded scrap was figured at $211.17/gross ton, also lower by less than $2.00/gross ton. Chicago No.1 bushelings were reported at $214.50/gross ton, delivered. World Steel Dynamic’s “SteelBenchmarker” is showing No.1 bushelings at $210/ton…shredded at $207/ton. Still other sources such as SBB are showing prices slightly higher with shredded scrap figured in a range of $215-$20/gross ton and No.1 HMS @ $219, delivered.

Meanwhile, in nonferrous markets, aluminum prices have lagged the rest of the London Metal Exchange complex so far this year, and by a lot. LME cash prices for copper, for example are up some 68% since end-December…lead is up 82%; nickel is up 37% and zinc has gained 43%. In contrast, LME cash aluminum is “only” up 11 % with most of that gain recorded in the past week…cash prices are up some 13% in the past week visiting levels last seen this past December.

But while lagging the others in price, it’s sure leading the rest with respect to LME inventory increases. As of yesterday, for example, stocks were up 83% so far this year. Tin stocks have increased by a greater percentage (they’ve more than doubled) but we’re only talking about an increase of 8,245 tons vs. 1.94 million tons for aluminum.

Anyway, aluminum has shown some new strength that some attribute to technical buying, potential Russian supply-side issues, and cancelled warrants. The question being, Is there anything fundamentally different? Is there any “there” there?

Macquarie Research, for one, has not changed its medium term view for aluminum, citing a global market that’s “burdened by heavy overcapacity and a huge stock overhang” along with a global consumption outlook that’s forecast to be lower by 4.3%. Thus, as they see it, a near supply/demand balance will have to wait till 2011. LME cash is expected to average $0.65 this year vs. last year’s $1.16/lb average.

CRU Group, meanwhile, is encouraged concerning aluminum and believes that the worst of the global demand slump is over. Nevertheless, the firm terms global economic recovery as “fragile and bumpy” along with second-half ’09 aluminum demand termed as “relatively moderate.” For the full year, CRU is forecasting that global aluminum demand will fall by 11%. Yipes.

But while LME aluminum is expected to only mark time, copper, according to Macquarie Bank, has the “best fundamentals of any of the base metals…” Although not without worry regarding lower Chinese buying ahead, and a global market that will end the year in surplus, Macquarie analysts have raised their second-half LME cash price forecast to $1.75/lb. For the full year, their forecast calls for copper to average $1.76/lb. Barclays Capital is even more optimistic – they’re looking at a second-half average of $1.93/lb, and $1.83/b for the full year.