Market Commentary

The final November durable goods report echoed recent economic data which shows that demand within the manufacturing sector is clearly being impacted by Fed policy. While current activity remains above pre-pandemic levels, it has come off the recent peak, with both new orders and shipments falling 4 out of the last 5 months. Compared to November last year, total manufacturing new orders were up 1.8%, but down 5.1% compared to October. While still growing YoY, this is the lowest percentage increase since February of 2021, 21 months ago.

Additionally, the chart below shows YoY percentage change in new orders for manufacturing excluding transportation actually decreased slightly, down 0.2%. This is the first YoY decrease in 23 months.

The chart below looks at the months on hand (inventory divided by shipments) using steel intensive catagories from the November durable goods report. MoH increased further this month, and was driven by the sharp drop in shipments, down 6.7% and unchanged inventories. While normal seasonality does play a role, this overarching trend will need to be watched closely as Spring approaches.


Upside Risks:

  • A sudden dovish shift in financial policy leading to less aggressive rate hikes
  • Strategic outages overshooting and causing production to fall below demand levels
  • 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 increasing interest rates and sustained restrictive policy from the Federal Reserve
  • Decreasing input costs allowing mills to aggressively sell lower while remaining profitable
  • Increased domestic production capacity leading to an increase in competitive pricing
  • Sustained levels of import arrivals keeping pressure on domestic mill pricing
  • Limited desire to restock and persistently short lead times causing a “Buyer’s Strike”

HRC Futures

The Platts TSI Daily Midwest HRC Index was up another $10 this week, ending at $730.

The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The front of the curve ended the week lower, while the back of the curve increased.

The 2nd month ferrous futures were mostly higher. Iron ore gained 4.4%, while LME Rebar lost 1.3%.

Global flat rolled indexes were all higher this week, led this time by Black Sea HRC, up 12.7%.

The AISI Capacity Utilization was down another 0.5% to 71.3%.

Imports & Differentials

January flat rolled import license data is forecasting a decrease of 78k to 684k MoM.

Tube imports license data is forecasting an increase of 16k to 629k in January.

December AZ/AL import license data is forecasting an increase of 5k to 63k.

Below is December import license data through January 2nd, 2023.

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. All of the watched differentials decreased last week, as most global prices increased more significantly than domestic prices.

Global prices were mostly higher again this week, led by UK HRC, up 8.7%.

Raw Materials

Raw material prices were mixed this week, with the IODEX up 6%, while Rotterdam HMS was down 1.6%. The Baltic Dry Index was down sharply again this week as well, falling another 14.8%.

Below is the iron ore future curve with Friday’s settlements in orange, and the prior week’s settlements in green. Iron ore was significantly higher last week, as additional reports out of China suggest that demand for steel will be strong in the beginning of the year.

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 increased again this week. While this is seasonally normal, current inventory levels are at their highest level in the last 5 years, for the second week of January.

Economic Data

The remaining economic data is below.

Base & Precious Metals

Base and precious metal futures were mostly higher this week, LME Aluminum was up 13.1%, while LME Nickel lost 4.6%. Among precious metals, Gold gained another 2.8% and is at its highest level since April 2022.


The U.S. dollar was down 1.73 to 102.18, while the Japanese yen gained 3.2% on the week.


Last week, the Febuary WTI crude oil future gained $6.09 or 8.3% to $79.86/bbl. The aggregate inventory level was up 2.9%. The Baker Hughes North American rig count was up sharply, by another 41 rigs, and the U.S. rig count increased by 3 rigs.


The U.S. 10-year yield fell 5 bps, closing the week at 3.5%. The German 10-year yield was down 4 bps to 2.17%, and the Japanese 10-year yield was up 1 bps to 0.51%.


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