The tariff induced price rally of 2018 ended last summer with the Platts TSI Daily Midwest HRC Index peaking at $920/st. From there, prices and lead times collapsed, and the index bottomed in February of this year at $677/st. However, prices have remained in a tight range between 680 and 700 since then.

During the quarter, mills pushed price increases, which successfully stabilized prices. The world price moved higher, reducing the attractiveness of importing material. The total forecasted sheet imports for the first quarter is 2.3 million tons, the lowest level we have seen in at least the last 5 years. However, prices failed to gain any upside momentum.

Several factors have kept buyers on the sidelines in 2019 including:

• Buyers benefitted in the second half of 2018 by waiting to purchase material and have continued that practice, only making spot buys when necessary
• 2018 ended with an inventory overhang as service centers were reluctant to sell material at large losses
• Worries of slower growth as economic data disappointed and financial markets appeared to price in a recession

In early March, the HRC future curve moved higher, pricing in expectations of a price rally during the second quarter. However, inactivity in both the physical and the futures market caused the future curve to flatten, with the front falling $25-30 over the last week.

After a sideways pricing environment for much of the first quarter, the question is “Where do we go from here?”

We believe that that the factors weighing on steel prices have largely abated, setting a base for prices to move higher in the second quarter. Inventory levels decreased during the first quarter, and service centers worked through older, high cost material. Lead times have stabilized and even pushed out slightly, removing any incentive to delay material purchases. As the government shutdown ended and economic data became available, it was clear that a recession was not eminent. The Atlanta Fed’s Q1 GDP Forecast moved from near 0% to its current reading of 2.07%. This is an annualized, year over year growth reading, meaning the U.S. economy is continuing to grow from the elevated levels of 2018. Additionally, after raising rates at the December FOMC meeting, the Federal Reserve signaled that they would not be tightening monetary policy in the near future. This supports asset prices and facilitates liquidity in the economy. Importing material will remain unattractive, as the world price continues to move higher, and imports should remain at these low levels.

The HRC future curve looks attractive at the current levels for buyers. There are still risk to this outlook, the most pertinent being the removal of tariffs. Specifically, tariff resolution with Mexico and Canada, as both countries have stated Section 232 tariff removal is needed to approve the USMCA trade deal, would weigh on prices.