Content
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Weekly Highlights
- Market Commentary
- Risks
August 23, 2019
Risks
Below are the most pertinent upside and downside price risks:
Upside Risks:
- Expanding lead times and price hike announcements
- Unplanned & extended planned outages
- Chinese economic stimulus measures
- Low current and expected import levels
- Domestic supply disruption
- Further section 232 tariffs and quotas restricting supply
- Chronically low inventory levels and restocking
- Strong global flat rolled prices
Downside Risks:
- Tariff resolution and/or 232 exclusions
- Trade War Fallout
- Strengthening U.S. dollar
- Increased domestic production capacity
- Weaker demand in construction and automotive
- Weak global economics/PMIs
- Political & geopolitical uncertainty
- Increasing import differentials
- Declining raw materials prices
HRC Futures
The Platts TSI Daily Midwest HRC Index was down $2.25 to $596.
Platts TSI Daily Midwest HRC Index
The CME Midwest HRC futures curve, shown below with last Friday’s settlements in white, shifted dramatically lower across all expirations.
October ferrous futures were mixed. Busheling futures lost 8.5%, while LME Turkish scrap gained 2.4%.
The global flat rolled indexes were mixed. Northern European HRC was up 1%, while ASEAN HRC was down 1.9%.
The AISI Capacity Utilization Rate fell again last week, down 0.4% to 79.8%. This rate has been hovering around the 80% goal set by the Trump administration since October.
AISI Steel Capacity Utilization Rate (orange) and TSI Daily HRC Price (white)
Imports & Differentials
August flat rolled import license data is forecasting a decrease of 42k to 742k MoM.
All Sheet Imports (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)
Tube imports license data is forecasting a MoM increase of 33k to 570k tons in August.
All Tube Imports (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)
All Sheet plus Tube (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)
AZ/AL import licenses are forecast to increase 12k in August to 73k.
Galvalume Imports (white) w/ 3 Mo. (green) & 12 Mo. Moving Average (red)
Below is August import license data through August 20, 2019.
Below is the Midwest HRC price vs. each listed country’s export price using pricing from SBB Platts. We have adjusted each export price to include any tariff or transportation cost to get a comparable delivered price. Differentials have been relatively stable since the end of July as global demand has cooled off.
SBB Platt’s HRC, CRC and HDG pricing is below. Midwest prices were flat on the week, while the Chinese CRC and HRC export prices were each down 1.9%.
Raw Materials
Raw material prices were mixed. FOB East Coast shredded was down 6.9%, while Brazilian pig iron was up 1.6%.
Below is the iron ore future curve with Friday’s settlments in orange, and the prior week’s settlements in green. The front of the curve saw very little change, while the later months sold off.
SGX Iron Ore Futures Curve
The ex-flat rolled prices are listed below.
Chinese Inventory
Below are inventory levels for Chinese finished steel products and iron ore. HRC, Rebar and 5-City inventory levels were lower again, while Iron Ore port inventory continues to increase. This could be a sign that production cuts anticipated in Q4 have begun early due to weak global demand.
Economic Data
The remainder of the pertinent economic data is below. FED Chair Jay Powell hinted that the FOMC would remain accommodative (i.e. additional cuts to the FED Funds Rate) in his prepared remarks on Friday in Jackson Hole. However, it is not clear what will happen during the September meeting, as there are at least two voting members (Eric Rosengren and Esther George) with dissenting opinions.
Energy
Last week, the September WTI crude oil future gained $1.47 or 2.7% to $56.34/bbl. The aggregate inventory level was essentially flat, and crude oil production was unchanged at 12.3m bbl/day. The Baker Hughes North American rig count lost twenty-two rigs and the U.S. count lost nineteen.
September WTI Crude Oil Futures (orange) vs. Aggregate Energy Inventory (white)
Front Month WTI Crude Oil Future (orange) and Baker Hughes N.A. Rig Count (white)
The list below details some upside and downside risks relevant to the steel industry. The orange ones are occurring or look to be highly likely. The upside risks look to be in control.
Upside Risks:
- Expanding lead times and price hike announcements
- Unplanned & extended planned outages
- Chinese economic stimulus measures
- Low current and expected import levels
- Domestic supply disruption
- Further section 232 tariffs and quotas restricting supply
- Chronically low inventory levels and restocking
- Strong global flat rolled prices
- U.S. Infrastructure bill
- Potential Russian sanctions cutting off Russian steel
- China strict steel capacity cuts/China getting serious about curtailing steel production
- Energy industry rebound
- Graphite Electrode Shortage
- Unexpected inflation
- Weaker dollar
- Flatbed trucking availability/transportation supply constraints
Downside Risks:
- Tariff resolution and/or 232 exclusions
- Trade War Fallout
- Strengthening U.S. dollar
- Increased domestic production capacity
- Weaker demand in construction and automotive
- Weak global economics/PMIs
- Political & geopolitical uncertainty
- Increasing import differentials
- Declining raw materials prices
- Crude oil prices remaining subdued
- U.S. Recession
- Falling global flat rolled prices
- Declining rates of growth in manufacturing/demand destruction
- Crashing iron ore, scrap and finished steel prices
- Domestic automotive industry under pressure
- 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
- Increasing import differentials