In March, steel prices significantly overshot the increases to raw material prices as fear around raw material availability was at its highest level. Since then, the input costs for mills have receded along with the risk of prolonged shortages. At the same time, steel prices have held up much better. Each ton sold at the current assessed prices still has $200-300 dollars of “excess” profits, compared to peak profitability in 2018. Clearly, there is plenty of room for buyers to negotiate lower prices, while mills have not shown signs of full capitulation.

Turning to global markets, we have a seen a deterioration in HRC prices over the last four weeks, and the impact on the U.S. domestic market is already visible in the falling Houston price, down 6.1%, last week. As imports continue to arrive at a steady pace, the impact of the Houston price will be more pronounced on the domestic market. The chart below shows both the Midwest and Houston prices over the last 5 years.

The faster pace lower in Houston’s price is not necessarily a forecast for Midwest prices, however, this widening gap is a signal that the domestic market will likely be under sustained pressure until the two converge. At the same time, it is important to remember that the global market has been operating ex-China for much of this year. Since the lockdowns, we have had a taste of a global market without its biggest player and the eventual impact of China coming online cannot be overstated, their demand could easily absorb all the low-cost material to offset this years’ reduced production. Lower cost imports are making their way around the world, and they will keep pressure on domestic prices in the coming weeks. At the same time, this is a going to be delicate trend, and the benefits of waiting for lower prices are reduced by the increasing freight cost, port congestion, and the serious risk around availability once China is back in the market.