The broader steel market continues to grapple with the counteracting forces of a strong demand outlook, and more than enough material to meet the current need. Excess inventory will remain the headline and supersede all other dynamics within the market until it is resolved, the same way the steel shortage drove the market last year. On the other hand, buyers have begun sticking their heads out of the ground. Inquiries for new material are increasing, and this shift is causing domestic producers to start pushing back in negotiations. Currently, lead times remain at their minimums and most inquiries do not make it past the quoting stage. However, as inventories start to dip and lead times push out, domestic producers will push price announcements in increments the market has never seen. This becomes especially likely when we take a step back and see what is happening with global prices. Buyers who took themselves out of the market when prices started to decline in September will enter a market that is dramatically different. As it stands, global prices pushed higher for the 4^th week in a row, led by Southeast Asian prices. Imports, which were anticipated to be higher in 1Q22 than in 4Q21, are on pace to be 10% lower. The point is, while we have not found the bottom and prices are anticipated to continue falling, most of this price correction has already occurred. The downside risks contributed to this decline are being resolved and upside risks at the current curve prices should begin garnering attention.

The chart below is a breakdown of the monthly purchases of flat rolled steel within the domestic market from either mills (orange) or imports (blue), with the dashed line representing the 3-month moving average. A higher percentage of import buys reflects decreased pricing power for domestic mills.

While levels for December and January are still historically elevated the current data suggests November was the point when imports had that most significant impact on pricing. While it is too early to tell, preliminary import numbers for February are down, which suggest we will see the share of imports take another step lower once this month is over. The slowdown in imports could be in part due to the recently resolved trucking/logistics problems happening at the Canadian border. After all, Canada and Mexico were responsible for nearly half of the flat rolled imports arriving in the U.S. over that last year. However, the loss of momentum in arrivals started late last year, not in February. An important question that gets to the heart of how low the domestic price will go, is how many import orders were placed for Q2 delivery, and at what price. Current orders from the global market are for June/July delivery, and as we mentioned earlier, those prices are rising, which we believe will provide support moving into Q2 as inventory continues to be consumed.