In last week’s report we referenced a recent shift in mill behavior, where they are turning away orders that don’t fit their book and pushing back on low offers even to the point of leaving tons on the table. Since then, that dynamic has started picking up steam. For weeks, mills have been pointing to March/April as a pivot point for the falling market. This is largely because of the significant number of planned outages from all domestic producers, as well as the fact that warmer weather and the corresponding increase in economic activity will start to kick in. This is further compounded by the recent announcement from Cleveland Cliffs that they are indefinitely idling blast furnace #4 at Indiana Harbor. Additionally, imports are arriving at a significantly slower pace than in Q4. We are less than one week away from the beginning of March, and it is a compelling case. Our view is that since actual transaction pricing remains below the published spot prices and most reports indicate that end users are comfortable with their current inventories, published prices will continue to fall over the coming weeks. We are, however, quickly approaching an inflection point, and the fundamental support for HRC is consolidating around $1,000. While it is possible that the price could continue push below that level in the short-term, an important question to ask yourself is what will happen next.

We continue to reference global strength in pricing, and the chart below shows the 3^rd month HRC future (currently April) minus current global export prices.

Once you adjust for existing tariffs and transportation costs, near-term domestic prices are below the rest of the world (except for Korea and Brazil, who are both on quotas). This price correction has already led to a nearly 50% decline in HRC price, but now, it is losing downward momentum. As more of these support levels are reached and mills take off production, the last gasp of a falling “spot market” will happen sooner than you think. As it currently stands, the futures curve allows you to lock in the remainder of the year below $1,000. It is important to note that prices in 2H22 have been increasing since late January, even as the spot price has fallen. If you are only focused on getting the lowest price on you spot material today, these opportunities may pass you by. Historically speaking, by the time the spot price reaches its bottom, the futures have already moved.