Market Commentary

On Friday, the Chairman of the FOMC Jerome Powell shared remarks on the economy and FED policy in Jackson Hole, Wyoming. Leading up to the event there was ambiguity around whether the Federal Reserve would slow the pace of interest rate hikes or even cut rates in 2023. This speech however, made it clear that interest rates have not reached their peak and cuts should not be expected any time soon. Below are two quotes from the speech.

“The historical record cautions strongly against prematurely loosening policy.”

“We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done.”

The reason this matters for steel is because it clarified that monetary policy would remain restrictive until inflation returns to the neutral rate of 2%. This means that long term projects will be more expensive, and demand will cool as a result. At the same time, structural changes to the U.S. steel market have made the industry more dynamic and will lead to higher prices over the next 5-10 years. The limited number of suppliers are more capable of adjusting to any demand level than ever before. The combination of these conflicting forces will lead to even more volatility in steel prices if you are not hedging that risk.


Below are the most pertinent upside and downside price risks:

Upside Risks:

  • China reopening its economy with further stimulus measures
  • Unplanned & extended planned outages, including operational issues leaving mills behind
  • Energy issues abroad curtailing global production
  • Easing supply chain restraints and labor shortages causing an increase in manufacturing activity
  • Reluctance in placing import orders, leading to a dramatic reduction in arrivals later this year


Downside Risks:

  • Decreasing input costs allowing mills to aggressively sell lower while remaining profitable
  • Increased domestic production capacity leading to an increase in competitive pricing
  • Steel consumers substitute to lower-cost alternatives
  • Limited desire to restock at elevated prices and persistently short lead times causing a “Buyer’s Strike”
  • Economic slowdown caused by increasing interest rates

HRC Futures

The Platts TSI Daily Midwest HRC Index was down another $30 to $760.

The CME Midwest HRC futures curve is above last Friday’s settlements in orange. The back of the curve moved lower last week, while the front was essentially unchanged.

The 2nd month ferrous futures ended the week higher led by Chinese HRC, which gained 2.9%.

Global flat rolled indexes were mixed last week. Northern European HRC was down 5.4%, while Chinese spot HRC was up 1%.

The AISI Capacity Utilization was up 0.7% to 79.7%.

Imports & Differentials

August flat rolled import license data is forecasting an increase of 168k to 1,039k MoM.

Tube imports license data is forecasting a decrease of 88k to 402k in August.

August AZ/AL import license data is forecasting an increase of 24k to 118k.

Below is August import license data through August 22nd, 2022.

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 all the watched countries differentials (excluding Europe) were lower last week, as the U.S. Midwest price fell most significantly. Differentials at these levels suggest that the currently elevated import level should subside by the end of the year.

SBB Platt’s HRC, CRC, and HDG pricing is below. The Midwest HRC, & HDG prices were down 3.8%, and 0.9%, respectively, while CRC prices were unchanged.

Raw Materials

Raw material prices were mostly higher last week, with the IODEX iron ore index up 6.1%, while Black Sea pig iron ore was down 2.6%.

Below is the iron ore future curve with Friday’s settlements in orange, and the prior week’s settlements in green. Last week, the entire curve jumped sharply higher, most significantly in the front.

The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. The recent trend continued this week, with HRC, Rebar, and 5-city inventories all lower, while iron ore stocks at the ports grew.

Economic Data

The remaining significant economic data is to the right.

Base & Precious Metals

Base and precious metal futures were mixed last week. LME aluminum was up 4.5%, while Silver was down another 1.8%.


The U.S. dollar was up another 0.67 to 108.84, while the Brazilian real gained 2.1%.


Last week, the October WTI crude oil future gained $2.29 or 2.5% to $93.06/bbl. The aggregate inventory level decreased another 0.3%. The Baker Hughes North American, and U.S. rig count both increased by 3 rigs.


The U.S. 10-year yield was up another 7 bps, closing the week at 3.04%. The German 10-year yield was up 16 bps to 1.39%, and the Japanese 10-year yield was up 2 bps to 0.22%.


Below are equity indexes and steel related companies:

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

Upside Risks:

  • Inventory at end users and service centers below normal operational levels
  • A higher share of discretionary income allocated to goods from steel-intensive industries
  • Changes in China’s policies regarding ferrous markets, including production cuts and exports
  • Unplanned & extended planned outages, including operational issues leaving mills behind
  • Energy issues abroad curtailing global production
  • Easing labor and supply chain constraints allowing increased manufacturing activity
  • Mills extending outages/taking down capacity to keep prices elevated
  • Global supply chains and logistics restraints causing regional shortages
  • Fiscal policy measures including a new stimulus package
  • Contentious union labor negotiations leading to supply disruption
  • Fluctuating auto production, pushing steel demand out into the future
  • The threat of further protectionist trade policies muting imports

Downside Risks:

  • Increased domestic production capacity
  • Elevated price differentials and hedging opportunities leading to sustained higher imports
  • Steel consumers substitute to lower cost alternatives
  • Steel buyers and consumers “double ordering” to more than cover steel needs
  • Tightening credit markets, as elevated prices push total costs to credit caps
  • Supply chain disruptions allowing producers to catch up on orders
  • Limited desire to restock at elevated prices, causing a “Buyer’s Strike”
  • Economic slowdown caused by the emergence of Coronavirus Variants
  • Reduction and/or removal of domestic trade barriers
  • Political & geopolitical uncertainty
  • Chinese restrictions in the property market
  • Unexpected sharp China RMB devaluation