As we enter the 8^h week of this upcycle, spot HRC prices are showing persistent momentum as they near $600/st. Lead times continue to extend as contract buyers are ordering the maximum tonnage allowed in order to capture discounted price benefits in a rising price environment. Consequently, order books are quickly filling as buyers scramble to fill current needs. Last week, we discussed pandemic related dislocations that have helped drive this rally. This week, however, we will identify cracks that are beginning to form in the outlook.

Recovering activity and demand in the domestic steel market, as well as the global economy, have helped drive steel prices to a 9-month high. Prices of various other commodities also reflected this recovery from the low levels in the spring. Recently, several of these other commodity markets have broken this uptrend, shown in the below charts, which could be an early caution signal for the domestic steel price rally.

Weakness in scrap and iron ore prices directly influence finished steel pricing through reducing the cost to produce. Moreover, weakness in Chinese HRC, aluminum as well as other industrial metals (copper is also rolling over) signals that there are broad factors affecting demand throughout the global economy. As we have seen in the past, global developments do not necessarily influence domestic steel prices. However, if weakness in industrial metal prices across the globe persists or worsens, eventually domestic prices will be affected and this historically swift rally will end.

With that said, the current rally has been mainly supply driven, as mill production and supply chain inventory levels are low. Specifically, service center inventory levels relative to shipments have fallen back down to their historical average, leaving buyers with few options to secure material. The longer this lasts, the higher prices can go.