Market Commentary

Looking ahead to next week’s beginning of the month economic data release, all eyes will be watching what the data tell us about demand, given that domestic steel prices have been rallying since early December. Including the Dallas manufacturing survey, which was released on Monday January 30, 2023, the 5 Regional Fed surveys (below) always provide insight into what to expect going forward.


To simplify the interpretation, we’ve consolidated all of the readings into the black dashed line. This shows that after November’s slight improvement, December decreased, and January data which was mostly below expectations (corresponding dotted lines) resulted in the deepest monthly contraction since the pandemic. What this tells us is that activity in the manufacturing sector continues to stumble as we start 2023. Looking more closely at the subindex break down, this move lower has been driven by depressed new orders, and backlogs, both under pressure since August. Over the next 6-months, our view is that the Federal reserve and rate decisions will be the most important factor for steel consumption and the domestic economy as a whole. To that, Friday provided further data which suggest we are approaching the peak terminal rate for the FED with PCE Core inflation decelerating further, now for the 3rd month in a row. While downside risks remain, a continued, steady decline in inflation and a softening labor market, much like we have recently observed, provides a path for a slowdown without a collapse in demand. If this materializes, the reduced levels of domestic production and depressed import volumes could support elevated steel prices.


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 $40 this week, ending at $780.

The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The front of the curve was higher, while the back fell. This movement resulted in a flat curve from April 2023 onward.

The 2nd month ferrous futures were all higher this week, led by Turkish Scrap which gained 5.3%.

Global flat rolled indexes were all higher, led by Midwest HRC, up 5.4%.

The AISI Capacity Utilization was up another 0.8% to 72.5%. This is the second week in a row that resulted in higher capacity utilization. While 2-weeks does not mark a significant trend, it should be noted that the current momentum of increased utilization is more pronounced than in early-December when mills first started announcing price increases and capacity utilization briefly ticked higher.

Imports & Differentials

January flat rolled import license data is forecasting an increase of 26k to 769k MoM.

Tube imports license data is forecasting a decrease of 61k to 560k in January.

January AZ/AL import license data is forecasting an increase of 23k to 78k.

Below is January import license data through January 25th, 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.

Differentials increased across the board, as the U.S. domestic price rose more significantly than any global price.

Global prices were mostly higher again this week, led by Northern European HDG, up 6.1%. Additionally, the Houston HRC price rose by 7.1% this week, confirming that rising global prices are impacting the domestic market.

Raw Materials

Raw material prices were mostly higher last week, led by Rotterdam HMS up 5.1%. Additionally, the Baltic Dry Index continues to fall, down another 11.3% this week.


The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. Rebar, HRC, and the 5-City Inventories all saw significant seasonal restocking while iron ore ports inventory slipped further. Where the big 3 inventories end in the beginning of March will tell us a lot about anticipated demand for the rest of the year.

Economic Data

The remaining economic data is below.

Base & Precious Metals

Base and precious metal futures changed very little on the week, CME Copper was down the most, it lost 0.7%, while LME Aluminum gained 0.6%. Additionally, silver was the biggest mover among precious metals this week, down another 1.3%.


The U.S. dollar was down another 0.09 to 101.92, while the Australian dollar gained 2% on the week.


Last week, the March WTI crude oil future lost $1.96 or -2.4% to $79.68/bbl. The aggregate inventory level was up 0.2%. The Baker Hughes North American rig count was up by another 6 rigs, while the U.S. rig count was unchanged.


The U.S. 10-year yield rose 2 bps, closing the week at 3.50%. The German 10-year yield was up 6 bps to 2.24%, while the Japanese 10-year yield was up 11 bps to 0.49%.


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
  • 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