Flack Capital Markets | Ferrous Financial Insider

Market Analysis

Overview:

• Domestic Steel Prices: all continued their upward trends.
• Global Steel Prices: mainly experienced slight increases.
• Domestic Steel Production: eased, however continued to build upward momentum.
• Steel Imports: are continuing to show an increase for January’s arrivals from December’s imports. February’s import level indicate a notable decline.
• Raw Materials: Spot prices and futures were relatively stable on the week.
• Energy: Futures for crude oil made gains, while natural gas slipped amid a steady aggregate inventory level and NA rig count.
• Metals: Base and precious metals primarily experienced increases, except for copper.
• Economic Data: This week provided further encouraging data on the rebound in manufacturing, while an especially cold January froze out housing activity. Consumer concerns around upcoming inflation continue to accelerate.

Midwest HRC Spot Price

Steel

U.S. Domestic

The HRC spot price surged by $50 or 6.3% to $850, marking the fifth consecutive week of increases. At the same time, the HRC 2nd month future also continued its upward trend, this week rising by $15 or 1.8% to $872, marking its fourth week of increases.

Tandem products both made gains, resulting in the HDG – HRC differential to rise by $40 to $150.

Mill production eased, with capacity utilization ticking down to -0.2% to 75.0%, bringing down raw steel production down to 1.670m net tons.

Midwest HDG – HRC Differential (Monthly Avg.)

AISI Raw Steel Capacity Utilization

Midwest HRC (2nd Month Future)

Imports

February Projection – Sheet 772k (down 177k MoM); Tube 301k (down 221k MoM)

January Projection – Sheet 949k (up 57k MoM); Tube 522k (up 110k MoM)

Differentials

Global differentials continued to expand. China’s Export HRC and Korea’s HRC both rose by 0.6%, N Europe was up by 0.3%, while Mexico was essentially flat.

Sheet Imports & Tube Imports

Global Differentials (including Transport & Tariffs)

Raw Materials & Freight

Scrap

The busheling 2nd month future held steady this week.

The Aussie coking coal 2nd month future inched up by $1 or 0.3% to $194, increasing for the second consecutive week.

The iron ore 2nd month future rose by $0.20 or 0.2% to $105.20, resulting in the five week change to be up by $2.70 or 2.6%.

Dry Bulk / Freight

The Baltic Dry Index increased by $12 or 1.5% to $792, marking a rebound.

Aussie Coking Coal (2nd Month Future)

Iron Ore (2nd Month Future)

Baltic Dry Index

Energy Market

WTI crude oil future gained $0.65 or 0.9% to $71.39/bbl.

WTI natural gas future lost $0.12 or -3.2% to $3.60/bbl.

The aggregate inventory level was unchanged on the week.

The Baker Hughes North American rig count held steady at 833, while US also remained unchanged at 588 rigs.

Natural Gas (Active Future)

Crude, Distillate, & Gas Accumulative Inventory

Rig Count – North American & U.S.

Base Metals

Aluminum futures rose by $8 or 0.3% to $2,645, retreating from the nine-month high of $2,730 reached on February 20th, as speculation grew that the U.S. government may ease some sanctions on Russia, alleviating concerns about constrained supply. The prospect of relaxed restrictions fueled a 50% surge in Rusal HDRs, the world’s largest aluminum producer outside China, in the third week of February, reflecting market expectations that the company could regain access to new export markets. This comes despite fresh warnings from the European Commission that it may impose additional sanctions on Russian aluminum. Meanwhile, China produced a record 44 million tons of aluminum in 2024, bringing output close to the government-imposed 45 million-ton cap established in 2017 to curb oversupply and meet carbon emission targets. With production expected to slow significantly, Beijing is balancing its industrial restrictions against a growing budget deficit and an expected fiscal stimulus push, supported by improving credit growth.

Copper futures fell by $7.25 or -1.5% to $464, hitting a two-week low, as signs of ample supply in key trading hubs pressured prices. In the U.S., President Donald Trump threatened to impose tariffs on copper imports but ultimately refrained, choosing instead to focus on steel and aluminum, ensuring a steady supply for domestic manufacturers. In China, refined copper production remained elevated, with treatment charges for smelters still below zero, highlighting significant overcapacity. Copper inventories also surged, with stockpiles exceeding 260,000 tonnes—three times higher than at the start of the year—while bonded warehouse stocks doubled to 33,000 tonnes. Meanwhile, a recent survey indicated that the global copper market experienced a substantial surplus last year, countering expectations that electrification-driven demand would lead to supply shortages.

Precious Metals

Gold increased by $10.50 or 0.4% to $2,911, as safe-haven demand surged amid heightened trade tensions following U.S. President Donald Trump’s latest tariff measures. The new duties now extend to lumber and forest products, adding to previously announced tariffs on imported cars, semiconductors, and pharmaceuticals, fueling inflation concerns and escalating trade uncertainty. Investor sentiment was further reflected in rising gold-backed ETF holdings, with SPDR Gold Trust reaching 904.38 tonnes, its highest level since August 2023. Meanwhile, markets are turning their attention to Friday’s U.S. Personal Consumption Expenditures (PCE) report, the Federal Reserve’s preferred inflation gauge. While price growth is expected to slow to its weakest pace since June, lingering inflationary pressures could keep the Fed cautious about cutting rates.

LME Aluminum

CME Copper

Gold

Economic Data

Early January Fed Manufacturing Surveys are continuing to point to early stages of a rebound in activity. Empire (NY) came in at 5.7, above the expected increase to 0. Philadelphia also came in at 18.1, better than the expected print at 14.3. New orders and shipments were primary drivers of this action, while employment contracted for both. Additionally, the preliminary S&P Global US Manufacturing PMI came in slightly better than expected (51.4), increasing to 51.6.

Housing data provided a mixed outlook, with building permits increasing 0.1% and clearly signaling further runway for builders, while housing starts fell 9.8% due largely to an unseasonably cold January. This was further confirmed by the NAHB Housing Market Index which printed at 42, a 5-month low, well below the expected slight decline to 46. The primary factor there, was a souring in expectations, which fell 13 point to 46 – the lowest reading since December 2023. Finally, existing home sales fell more significantly that expected, declining 4.9% to 4.08M.

Finally, the final University of Michigan Consumer Sentiment Survey was released and painted a pessimistic picture after initially improving after President Trump’s victory in November. The main takeaway is significant concern around inflation. The 1yr Inflation Expectation held steady at 4.3%, while the 5-10yr Expectation ballooned to 3.5%, the highest reading since 1995. Coincidentally, 1995 is the only time a soft landing was successful following prolonged restrictive interest rate policy. With all of this in mind, we continue to believe that the FOMC will not be cutting interest rates this year.

Empire (NY) and Philly FED Manufacturing Surveys

Building Permits and Housing Starts

Existing Home Sales

U. Of Mich. Inflation 5-10-year Expectations