Last week the HRC Spot prices continued to fall, with the Platts TSI Daily Midwest HRC Index falling $13. Interestingly, the futures curve did not fall in the same manner. Near term expirations prices fell slightly, and longer term expirations actually rose. Based on the futures curve, the financial market thinks prices will bounce. This report has discussed producer profits on the marginal ton, which has been declining for almost a year, and reached a level that is unsustainable. In negotiations with domestic suppliers, mills have shifted their stance recently and have been less willing to negotiate lower prices. They want prices to hold these levels, or bounce. Service centers are holding high priced material, from either lagging price contracts or the inventory overhang from the beginning of the year. The falling prices are causing financial distress, through slow payments to mills or broken bank covenants. They want (and in some cases need) the price to stabilize or bounce. So with all these interests aligned in terms of price direction, why does the price continue to fall?

In the market, nothing has fundamentally changed. Prices need a catalyst in order to change direction. Declining mill profitability will not affect prices unless production is removed. Service centers have not restocked, despite low levels of inventory. Lead times continuing to decrease supports this strategy. While demand remains steady, business outlook and optimism remains uncertain among trade tensions and weak global manufacturing sectors. While price differentials have continued to decrease, global prices have slipped, lowering the price “floor” we have discussed. However, the further prices fall, the more likely each of these dynamics reverses. We continue to take a long-term practical approach, and lock in a fraction of our purchases at current prices.