[ferro-alloys.com]The fall in spot US steel prices over recent months may be eating into margins after strong contract pellet premiums and US met coal prices rose for 2019, up from 2018 contracts.

US coking coal and blast furnace coke contracts for 2019 were discussed this year a little earlier than usual on average, with price support from strong steel prices and margins at the time. Settlements were largely on a fixed price basis to many buyers, with higher quality coals reported to be getting over $140/st mine.

Interest in locking in higher quality met coal grades due to limited coke capacity in the US and high steel prices around the summer led to higher contract prices, with year-on-year increases in US HCC of around 20%-30% discussed as settlements.

The Platts TSI US HRC peaked at an average of $917.75/st in July, before falling steadily, and averaged at $804.04/st in November. As of Monday, HRC prices stood at $741/st, down from $746.50/st on Friday.

Investment bank BMO Capital Markets expects US HRC at $740/st in 2019, revised down from $750/st, it said in a note. Further price falls in HRC may be limited, BMO analyst David Gagliano wrote. He forecasts US HRC prices averaging $750/st in the first half of 2019, $730/st in H2 2019 and $675/st in 2020.

"Near term, signs of price stabilization are emerging, with some lead indicators improving over the past two weeks (met coal/iron ore rebounding, Asia prices stabilizing, lead times rebounding, and December imports down month on month)," he said.

"Oversupply risks remain, particularly in the second half of 2019."

US steel capacity rates remain high, at 81%, and up 9 points on a year ago, he said. Met coal miners expect restarts and higher operating rates at North American blast furnaces to aid domestic demand.

Iron ore pellet premiums are set to rise, with settlements so far suggesting an increase on a equivalent pricing basis using IODEX 62% fines.

One major mill was said to be currently looking to secure additional US high-vol HCC for North America.

Purchasing activities earlier this year may have led to some pushbacks at contracted fixed pricing levels. Usage of spot export HCC indexes in domestic pricing formulas, and spot buying to meet overall demand and supplement contractual tons may have been a feature in some cases.

(S&P Global Platts) 

• [Editor:王可]