Market Commentary

This will be the final WoW report of the year, the next publication will be dated January 6th, 2023.


The Chinese export HRC price has now increased for 6 straight weeks, up over 14.2% since it bottomed over the week of November 4th. The chart below shows the spread between the U.S. Midwest HRC price, minus the Chinese export (adjusted for transportation and tariffs) HRC price.

The main takeaway from this chart is that the Chinese export price (which is a good stand-in for the global price) does not offer a good opportunity for importing material over the next couple of months. Taking a closer look at short-term implications, a negative differential (i.e., below the red horizontal line) is a strong bullish signal for domestic prices. It means that there is minimal risk for domestic producers to be undercut by global producers and when taking the long-term average of the differential into account (blue horizontal line), this suggests that domestic prices could run for more than $150 from current spot levels before the threat of imports is critical. To further support that, the chart below shows the Midwest (dark blue) and Houston (orange) HRC prices.


The main difference between the two prices above is that Houston HRC will always be more driven by import arrivals than the Midwest price. As referenced above, we have seen the global price rally over the last 6 weeks, and now we see the impact of that domestically, with the Houston price increasing for the first time in 34 weeks. While the impact on next year’s demand from the most significant tightening cycle in decades remains to be seen, the broad increase in global and domestic HRC prices should carry into the beginning of the year. It is important to remember that reduced demand for steel does not necessarily mean lower prices. Current prices are well below the inflated numbers from 2021 and the spring of this year. Compared to the rest of the world, US producers are in a unique position to throttle back supply and meet demand going forward if mills remain disciplined. This dynamic could be even more significant going into 2023 now that mills have shrunk their contract books and are not obligated to produce at elevated levels when demand is shaky.



Upside Risks:

  • A sudden dovish shift in financial policy leading to less aggressive rate hikes
  • A further reduction in import arrivals due to rising global prices
  • Increasing input costs causing mills to raise the floor of their offers
  • Easing supply chain restraints and labor shortages causing an increase in activity
  • Energy issues abroad curtailing global production
  • China reopening its economy with further stimulus measures

Downside Risks:

  • Economic slowdown caused by sustained restrictive interest rate policy from the Federal Reserve
  • Increased domestic production capacity leading to an increase in competitive pricing
  • Risk of imports establishing a ceiling on domestic mill pricing
  • Demand uncertainty causing buyers to hold low inventory positions

HRC Futures

The Platts TSI Daily Midwest HRC Index was up another $20 this week, ending at $690.

The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The entire curve was higher this week, most significantly in the front. The ended the week flat around $800-820 level for 2023.

The 2nd month ferrous futures were mixed this week. Midwest HRC gained 6.9%, while Turkish scrap lost 2.3%.

Global flat rolled indexes were all higher again this week, led this time by Northern European HRC up 4.3%.

The AISI Capacity Utilization was up another 0.2% to 73.3%.

Imports & Differentials

December flat rolled import license data is forecasting an increase of 3k to 768k MoM.

Tube imports license data is forecasting an increase of 5k to 571k in December.

December AZ/AL import license data is forecasting an increase of 14k to 69k.

Below is December import license data through December 12th, 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. The differentials for Northern Europe and China decreased this week, while the remaining countries differentials all increased.

Global prices were mostly higher again this week, led by Brazilian Export CRC, up 15.5%.

Raw Materials

Raw material prices were mixed this week with Rotterdam HMS down 5.8%, while Aussie coking coal was up 3.3%.

Below is the iron ore future curve with Friday’s settlements in orange, and the prior week’s settlements in green. Iron ore was down slightly across all expirations last week.

The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. All the watched inventories destocked this week, as demand for steel continues to climb in China.

Economic Data

The remaining economic data is below.

Base & Precious Metals

Base and precious metal futures were all lower this week, led by LME zinc down 6.9%. LME Aluminum, down 4.3% on the week, was lower on 4 of the 5 trading days. Silver and Gold, each down 1.6% and 0.6% were both under pressure after the Federal Reserve clearly indicated that they would remain steadfast in their higher for longer interest rate stance.


The U.S. dollar was down 0.09 to 104.84, and the Australian dollar lost 1.6% on the week.


Last week, the January WTI crude oil future gained $3.27 or 4.6% to $74.29/bbl. The aggregate inventory level rose 2.1%. The Baker Hughes North American rig count decreased by 7 rigs and the U.S. rig count decreased by 4 rigs.


The U.S. 10-year yield fell 10 bps, closing the week at 3.48%. The German 10-year yield was up 22 bps to 2.15%, and the Japanese 10-year yield was unchanged at 0.25%.


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
  • 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