Flack Capital Markets | Ferrous Financial Insider

Market Analysis

Overview:

• Domestic prices began to wane after several weeks of increases. While, the HRC 2nd month future dropped further, marking the second consecutive week of decreases in price.
• Global prices were mixed, although mostly declined, except for China and Korea, resulting in all the watched global differentials to contract except for the US Domestic HRC – Europe HRC to expand.
• Domestic production continued to tick up this week, rising to a level not seen since August 2023 and coming in line with the historical average level of raw steel production.
• Preliminary import data for March continues to point to a level of arrivals not seen in nearly two years. At the same time, we got a first look at April’s imports, with preliminary data indicating a continuation of arrivals trending higher.
• Raw materials and their respective futures experienced some notable increases, except for the 2nd month busheling future, which edged slightly lower.
• Crude oil and natural gas futures both had losses, in the face of both inventories and the NA rig count growing.
• Base & precious metals rallied further this week, amidst a strong manufacturing PMI from China and heightened geopolitical tensions in the Middle East.
• The big story in economic data was the clear signal of stubborn and sticky inflation. As a result, the much-anticipated start to the rate cut cycle continues to be pushed back with the market currently pricing in the first cut in September.

Midwest HRC Spot Price

AISI Raw Steel Production

Steel

U.S. Domestic

The HRC spot price dropped by $10 or -1.2% to $825, marking the first price decrease in six-weeks. Meanwhile, the 2nd month future added onto last weeks fall, declining by $49 or -5.6% to $833, hitting the lowest price in six-weeks.

Tandem products both remained unchanged, resulting in the HDG – HRC differential to increase by $10 or 3.5% to $295.

Mill production rose to its historical average level for the first time since August 2023, with capacity utilization ticking up by 1.1% to 78.6% and raw steel production jumping up to 1.745m net tons.

Midwest HDG – HRC Differential (Monthly Avg.)

AISI Raw Steel Capacity Utilization

Midwest HRC (2nd Month Future)

Imports

April Projection – Sheet 1033k (up 44k MoM); Tube 429k (down 18k MoM)

March Projection – Sheet 990k (up 231k MoM); Tube 447k (up 64k MoM)

Differentials

Global differentials were mixed but largely contracted, with China Export and Domestic HRC rising by 1.0% and 1.8%, respectively, and Korea HRC increasing by 0.4%, while all other global prices faced declines or held steady.

Sheet Imports & Tube Imports

Global Differentials (including Transport & Tariffs)

Raw Materials & Freight

Scrap

The 2nd month busheling future experienced a slight decline, falling by $7 or -1.5% to $450, however, the five-week price change continues to show an increase, being up $20 or 4.7%.

The Aussie coking coal 2nd month future rebounded by $19 or 8.4% to $245, marking a recovery after last weeks price drop from this price.

The iron ore 2nd month future rose by $14.04 or 14.5% to $111.04 to round out the week, marking a notable turn around since its most recent downward trend.

Dry Bulk / Freight

The Baltic Dry Index experienced a slight recovery, bouncing up by $60 or 3.6% to $1,729, however, the five-week price change continues to be negative, being down by $522 or -23.2%.

Aussie Coking Coal (2nd Month Future)

Iron Ore (2nd Month Future)

Baltic Dry Index

Energy Market

WTI crude oil future lost $1.89 or -2.2% to $85.02/bbl, retreating from a its most recent price high.

WTI natural gas future lost $0.02 or -1.2% to $1.76/bbl.

The aggregate inventory level experienced a notable up-tick, increasing by 1.0%.

The Baker Hughes North American rig count gained 2 rigs, bringing the total count to 758 rigs, whereas the US count had a reduction, declining by 3 rigs, bringing the total count to 617 rigs.

Natural Gas (Active Future)

Crude, Distillate, & Gas Accumulative Inventory

Rig Count – North American & U.S.

Base Metals

Aluminum prices soared to $2,494, reaching a 14-month high, driven by a broader rally in base metals, a weakening dollar, supply concerns, and rising demand from China. Surprising gains in China’s manufacturing PMI data for March indicated a positive response to Beijing’s economic stimuli and support measures, helping boost factory activity. The price rise was further supported by ongoing supply issues, highlighted by the Aluminum Corp of China’s warnings about bauxite security, which remains vulnerable due to reliance on Guinea—a country experiencing disruptions following an explosion at a major fuel depot. Additionally, production in Yunnan, China’s fourth-largest aluminum-producing region, was constrained by seasonal production cuts during the dry season.

Copper climbed by $1.70 or 0.4% to $425, reaching levels not seen since June 2022, as robust demand and tight supply in China countered the effects of a strong US dollar. New trade data revealed a 16% increase in unwrought copper imports by China, the world’s largest consumer, totaling 474,000 tonnes in March. This rise corresponds with strong manufacturing PMI numbers, indicating a potential rebound in China’s industrial sector after a period of decline. Additionally, regulatory changes are enabling Chinese copper smelters to reduce their output by up to 10% this year. Satellite observations have also recorded an uptick in offline smelters in March. This reduction in output coincides with a significant drop in copper ore supply due to disruptions at major mining sites, including the Cobre mine in Panama and several in Chile, leading to intense pressure on the treatment and refining markets where fees have nearly vanished.

Precious Metals

Silver jumped above $28, reaching the highest point since February 2013, propelled by increased investment in safe-haven assets due to rising inflation and geopolitical tensions in the Middle East. The ongoing conflict escalation, highlighted by the collapse of ceasefire talks between Israel and Hamas and Iran’s threats of retaliation following an airstrike, fueled investor concerns. Beyond its role as a traditional safe-haven, silver’s demand has also been boosted by its industrial uses. Economic recovery signs in China, a major consumer, alongside anticipations of further stimulus, have particularly increased its use in chip and solar panel manufacturing. Additionally, positive manufacturing data from other major economies like the US and Germany contributed to the optimistic outlook for silver.

LME Aluminum

CME Copper

Silver

Economic Data

CPI YoY rose to 3.5% from February’s 3.2% and surpassed the forecast estimates of a 3.4% increase. At the same time, March’s CPI (Ex Food & Energy) YoY held steady at 3.8%, which was also above market expectations of 3.7%. Another concerning signal comes from Supercore CPI YoY which rose to 4.8%, it’s highest level since April 2024. In the run up of interest rates, Chair Powell specifically pointed to CPI Services (ex. Shelter) as a key indicator for where price pressure was trending.

The producer prices release, on the other hand, provided more of a mixed view on how upstream prices were coming in. Topline PPI YoY rose 2.1%, below expectations of a 2.2% level, while PPI ex. food and energy YoY came in slightly hotter, up 2.4% versus estimates of a 2.3% increase.

Moving on to the consumer, there are early indications that the bias towards disinflationary expectations is no longer as clear and pronounced. The March NY Fed 1-Yr Inflation Expectations, held steady at 3.0% (4th straight month) and the April preliminary University of Michigan 1-Yr Inflation Expectations rose back up to 3.1% from 2.9%, last month. The key risk here is that the longer inflation is sticky, the more likely we will see a surge in wages demanded as expectations for higher prices in the future are entrenched.

From the labor market side, real average weekly earnings YoY remained positive for the 10th straight month. Initial jobless claims came in below expectations again this week and those, coupled with the level for continuing claims point to a strong labor market.

Topline (dotted) & Core CPI and Topline (dotted) & Ex. Food and Energy PPI

NY FED & U. of Michigan 1yr Inflation Expectations

Initial & Continuing Jobless Claims