Since the beginning of February, we have been noting the progressive shift in mill behavior, where the increased volume of inquiries has led them to pull back in negotiations. As the weeks went on, this dynamic became more pronounced, and as prices continued to rapidly fall, we have also been highlighting the fact that upside price risks were rapidly mounting. From the buyer’s side, if you read these reports and keyed in on the fact that we anticipated lower spot prices, you were right to do so. Now, those lower prices have arrived – the spot price today is $200 lower than it was at the beginning of the month. We anticipate that the bottom of HRC prices is right around the corner. While some lagging indexes may continue to print lower in the next couple of weeks, new deals for HRC below $1,000 have all but dried up. The increased number of inquiries are now becoming orders, and as the rest of the market wakes up to this new reality, we anticipate very few headwinds to slow down the rising spot market.

More importantly, for buyers who did not listen to our bullish perspective on the second half of the year and locked in HRC price below $1,000, unfortunately, that opportunity has passed by entirely. Here’s what has changed since last week:

• Nucor joined Cliffs with a $50 price announcement, and other mills have “unofficially” jumped on the bandwagon
• Lead times have increased for the first time in 30 weeks and most mills have moved into April for production
• Every expiration of HRC future contracts increased $50-75 as of Friday, February 25^th (note: the forward curve has increased substantially even since then)

As it stands today (March 1^st), the current fixed HRC base price for the remainder of 2022 is $1,175. That’s $225 higher than what was available on February 18^th. You may have noticed that we have not mentioned the Russian invasion into Ukraine up to this point, when talking about the upside risk for the remainder of the year. That is because the bottom was going to happen anyway, the result of the escalating conflict in the CIS has not yet been priced into the U.S. domestic spot market but it will push the ceiling higher and extend the upcycle.

While it is far too early to know every way this conflict and the retaliatory sanctions will impact global trade, we do know that millions of tons of steel production and iron ore will be been taken out of the market. Russia and Ukraine are the 3^rd and 13^th largest steel producers, respectively, according to the Department of Commerce & S&P Global. Additionally, Ukraine is the 5^th largest producer of global iron ore, and the CIS is the most significant exporter of pig iron to the U.S. Global steel prices are already meaningfully higher than they were at the beginning of 2022. Pulling these expected tons out of circulation will put more pressure on global supply chains and on prices. Here in the U.S. the immediate impact will cause higher raw material prices, as global availability and substitute goods evaporate. Furthermore, if the already severed relationship between the E.U. and Russia gets any worse, the E.U. may be forced to dramatically reduce steel production due to their limited access to Oil & Gas. It’s not out of the question that the U.S. may end up being a source of steel supply both here domestically and in Europe.