After a few weeks of apparent price consolidation at $1,300 for spot HRC, last week, the ferrous complex showed further strength with mills moving quotes above $1,350 with the spot indexes not far behind. This comes as March will soon surpass February with the highest HRC prices on record, just like February did to January. As the dust continues to settle, there is additional clarity on some of the optimism from the buying community referenced in last week’s report. This week, we will look at recent trends in supply and demand within the domestic market ahead of the new slew of economic releases coming on the first of the month.

Every week, we track new import orders and mill production, which can be found further below in every report. This process was even more vital as the severity of the supply shortage became clear late in the summer of last year. After receiving final census data for February imports, we see the first true evidence to match recent anecdotes that Imports are in fact coming in above the severely depressed levels we saw last year. On top of that, mills continue to increase production and are looking to June/July as the point at which they could catch up on their order books. Using these recent trends, we have created a simple scenario projection (below) to look at where the supply side could be in 6-months.

The darker shades represent current levels, and the lighter shades show a continuation of recent growth rates. Also, the blue arrow represents the point where supply returns the January 2020 pre-pandemic level. One might look to the futures market and assume that the second half of the year is the breaking point for the price of HRC, which incidentally sold off significantly last week. But that is only half of the story.

Potential demand erosion is another concept that has received much attention since the HRC price started to climb, with many participants expressing concern over final goods becoming too expensive. However, we look to the Regional Fed Manufacturing reports for March (below) for a more current gauge of demand at these elevated prices.

We see continued, broad strength in New Orders after last month’s dip. Additionally, there were increases in Backlogs and Shipments, while Inventories remain low. Finally, it is important to remember that with inventories still at diminished levels, restocking will be necessary in the months ahead, which would boost the current demand, possibly to levels that match the projected supply growth. Therefore, while elevated supply is needed in this steel short market, it does not necessarily indicate that prices must move lower immediately, due to the also necessary restocking. With that in mind, it is important to look at your own backlog and determine whether last week’s approximately $50 decrease in HRC futures pricing for the 2nd half of this year provides enough margin to lock in prices.