Midwest flat rolled prices continued the rally that began at $365/st in December, 2015.  So far, prices have seen higher highs and higher lows.  We remain positive on the domestic steel industry while watching some concerning developments in iron ore and Chinese finished steel prices as well as the domestic automotive industry.   Last week, MSCI flat rolled inventory data showed an increase in shipments and decrease in inventory.  Please refer to the previous week over week report for an in depth analysis of the MSCI data. 

The “buy the dip” theme remains intact as fundamental data continues to be very strong. We see the following data points as the foundation of our current analysis:

  • A global uptrend in manufacturing purchasing managers indexes
  • Low inventory levels evidenced in the MSCI, ISM and Durable Goods reports
  • Relatively light imports with trade restrictions and a protectionist Presiden
  • A rebounding energy industry

TSI Daily Midwest HRC Index

AISI data added to last week’s rebounding production and capacity utilization.  Is this a positive response to the some of this month’s price weakness or are the mills producing more and that is putting pressure on prices?

AISI Steel Capacity Utilization Rate and TSI Daily HRC Price

Domestic HRC indexes were down slightly between $644 – $650. Asian prices were under pressure again with Chinese HRC and TSI ASEAN HRC Falling 5.5% and 6.6%, respectively.

Last week, iron ore futures made a breakneck round trip falling from $67 to $60 on Tuesday before rebounding to finish the week back at $67.  Prices fell along with Chinese rebar and HRC, but ore rallied after a supply disruption at a Brazilian port was reported.

May SGX Iron Ore futures

The TSI ASEAN HRC Index has been obliterated in the past few weeks.  The differentials to US Midwest HRC prices are starting to expand to levels that could boost import transactions.  However those imports won’t show up until the August – October period.  At a certain point in the calendar, the attractiveness of imports collapses once they fall into late November and December delivery.  This is especially true and the deadline is closer for CRC and HDG.  

TSI North Europe prices stabilized and should rebound with the gains in the euro and improved sentiment following the results of this past weekend’s French election.

CME Midwest HRC futures were mixed.  April futures fell $5 to $650, May gained $10 to $640 and June gained $15 to $625.  Q3 slipped $10 to $595 and Q4 fell $2 to $578.

The TSI Daily Midwest HRC Index fell $8 to $644 while May CME futures gained $10 to $640.

May CME HRC Futures vs. TSI Daily Midwest HRC Price

The aggressive April license forecast has reversed the downtrend that started last July.

Tube imports have exploded as the comeback in the energy market has gained steam.

Coking coal turned around sharply with TSI coking coal closing the week at $263.4/t and SBB coking coal at $252/t. 

SBB Premium Hard Coking Coal Australian Export

Rotterdam HMS fell 4.3% while Turkish scrap was under pressure across the board. 

Ore finished up on the week for the first time since mid-March.

The iron ore curve gained while remaining steeply backwardated through 2018. The curve is flattening as prices fall.

Chinese rebar was under pressure again this week taking Black Sea billet and Turkish rebar down with it.

The April Empire Manufacturing Survey fell to 5.2 from 16.4 and badly missed expectations.  The April Philly Fed Survey also dropped to 22 from 32.8 and missed expectations of 25.8.  March Housing Starts fell while March Building Permits and Existing Home Sales gained big MoM and beat expectations. The rest of last week’s economic data is below.


The S&P 500 gained almost one percent while the Nikkei gained almost 2%. The China CSI 300 fell 1%.

Steel stocks rebounded nicely led by a strong MSCI report and EAF mill earnings.

Steel Dynamics

Iron ore miners were mixed.

Base metals were mixed with LME aluminum up almost 2%, LME copper down 1.2% and LME nickel falling 2.75%.

LME Nickel

LME Aluminum

The dollar index fell back below 100 while the euro rallied.  The British pound gained over 2% and the Turkish lira was up almost 2%.  The Canadian dollar and Mexican peso were both down over 1%.

US Dollar Index


British Pound

Turkish Lira

Crude oil prices fell almost 7% or $3.56 to $49.62.  The US rig count gained 10 rigs to 857 while production continued higher.  The crude oil and aggregate inventory level was flat. Natural gas slipped 4% to $3.10/mbtu. 

May WTI Crude Oil Futures

Aggregate Energy Inventory (Blue) vs. WTI Crude Oil Futures

D.O.E. Crude Oil Inventory

D.O.E. Crude Oil Inventory Perspective (1982 – Present)

Baker Hughes US Rig Count

D.O.E. Crude Oil Production

D.O.E. Crude Oil Production Perspective (1984 – Present)

The US 10-year Treasury yield was flat while the German 10 year gained 7 basis points to 0.25%.

U.S. 10 Year Bond Yield

The list below details some upside and downside risks relevant to the steel industry.  The bolded ones are occurring or look to be highly likely.  Upside risks look to be in charge.

Upside Risks:

–          China pumping up its “old economy”

–          Energy industry rebound

–          Border adjustment tax

–          Big rally triggered by price increases/low inventory/restocking

–          President Trump’s agenda

–          Infrastructure bill/long-term solution to highway spending bill

–          China getting serious about curtailing steel production

–          Transportation supply constraints

–          Essar labor issues

–          Post-election economic pick up

–          Massive restocking (domestic and/or global)

–          Unplanned domestic supply side disruptions

Downside Risks:

–          Political uncertainty – Reflation trade reversing

–          Increasing oil and iron ore inventory levels

–          Automotive industry under pressure

–          US domestic producers bringing back on capacity

–          Higher interest rates slowing residential construction and auto sales

–          Tightening financial conditions pressuring auto sales driven by sub-prime financing

–          Chinese restrictions in property market

–          The Chinese Financial Crisis

–          Unexpected sharp China RMB devaluation

–          Rebound in import volumes

–          Increasing import differentials

–          Resumption of US dollar rally/currency issues/sovereign default

–          U.S. (manufacturing) recession

–          Falling ferrous raw materials and global finished steel prices

–          Economic downturn, especially in China or Europe reverberating to U.S.A.

–          Weak demand in housing or automotive