Over the last couple of weeks, global news around ferrous markets have been driving the U.S. prices. The most important news from last week came on Thursday, April 7^th when the Congress voted to remove the “most favored nation” trade status from Russia. While the new tariffs on steel and aluminum will have a measurable impact on prices, it should be noted that this means the worst-case scenario for global trade did not materialize. When Russia invaded the Ukraine, the global ferrous futures markets quickly reacted to the possibility of an impending raw material and finished steel shortage due to import bans and halted production in the CIS. Instead of placing a full ban on Russian exported metals (like the government did with oil, natural gas, coal, seafood, and alcohol) this vote results in new 20-25% tariffs on semi-finished steel, finished steel, aluminum, and most importantly for EAFs a $1.11/MT tariff on pig iron. What has become clear, even prior to the vote, is that Russian material will be making its way around the world whether through China, and India or through traditional supply chains at elevated prices. So, what does this mean for steel in the U.S. domestic market? While there are remaining details to be worked out with Russian exports, a prolonged shortage of raw materials does not appear to be on the horizon. However, if you are assuming this will result in relief for elevated spot pricing, we believe you have taken this news a step too far.

If you read the report dated February 18^th, we make it clear that we were bullish in our price outlook for the rest of 2022. While the pace of the ensuing HRC rally was primarily driven by the war, we believed that the bottom was being established in the physical market and prices would start to rise anyways. All the fundamentals that were driving the market were pointing to higher domestic HRC prices. Global differentials were negative, demand was strong, raw material costs were high and rising, and supply chain issues and costs were not subsiding.

In the current domestic market, mill spot availability has continued tightening. Tons are out there, but they are priced higher than published spot prices and rather than chasing orders, mills are pushing back on buyers attempts to max-out contracts. The key takeaway from this should be that while the worst-case scenario did not come to pass, transactions are occurring at these levels and there is additional upside risk in the medium-term as demand picks up in warmer weather.