Last Friday, ArcelorMittal increased prices $40, attempting the fourth round of price increases since late October. However, support for this increase will likely remain unknown until mid-January, as spot transactions will be sparse over the next few weeks due to holidays. For increases to hold, mills must be willing and able to turn away orders. Without any new orders being placed, it will be difficult to determine a spot transaction price. Moreover, the mills appear to be in a strong position to hold prices higher through the end of the year because elevated lead times indicate that their January order books are strong. The fact that there will be fewer active buyers in the market decreases the buyer community’s ability to negotiate lower prices. The next price move will be based on buying activity and willingness to pay higher prices come January.

For most of 2019, buyers were rewarded for delaying purchases because prices were declining and lead times shrinking. This “buyer’s strike” remains the preferred purchasing strategy, although it isn’t currently affecting mill’s order books or market prices. This is due to significant order placement activity in late October as prices bottomed and sufficient inventory positions to last well into January. While transaction prices are over $100 higher now, it is unlikely that any significant volume is transacting at the current spot price. We won’t know until current inventory stockpiles are depleted and buyers return to the market whether demand activity has increased enough to justify paying $600 for HRC.

The uncertainty regarding the direction of the next price move is reflected by the flat future curve. Below is a chart of the 6^th month HRC future price minus the 3^rd month future. The curve is in contango when the line is positive, flat at the zero line, and in backwardation when negative.

With the curve maintaining a flat pricing expectation at the $590 level through 2020, the upside and downside risks appear balanced. The current spot price of $580 – $600 is in line with the historical average price of HRC over the past 5 years, excluding the deceptive peak of 2018. However, there are undoubtedly unpredictable events that will influence market prices, presenting a significant risk to any future physical transactions. The curve should be used as a tool to mitigate these risks inherent in the market, and currently, it provides the opportunity to lock in current prices for the next year.

Administrative note: This will be the last Week Over Week report of 2019. We will return the first full week of January. Have a happy and safe holiday season!