Market Commentary

The charts below show components of the mill margin spread. On top is the 2nd month HRC future in white and the 2nd month Busheling future in orange. The second chart shows the HRC-Busheling spread in yellow.

If you exclude the pandemic shutdowns and subsequent rally, the spread between the two at the current level of $265 is very low for historical standards. In the 4 years prior to the pandemic, the average of this spread was $312, and the low point in 2019 (a year which saw significant downward pressure on prices) was $251. The point here is that the downside risk to HRC prices has already materialized and at the current levels the risk to the upside is starting to be more pronounced.


Upside Risks:

  • A sudden dovish shift in financial policy leads to less aggressive rate hikes
  • Strategic outages overshooting and causing production to fall below demand levels
  • 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 increasing interest rates and sustained restrictive policy from the Federal Reserve
  • Decreasing input costs allows mills to aggressively sell lower while remaining profitable
  • Increased domestic production capacity leading to an increase in competitive pricing
  • Sustained levels of import arrivals keeping pressure on domestic mill pricing
  • Limited desire to restock and persistently short lead times causing a “Buyer’s Strike”

HRC Futures

The Platts TSI Daily Midwest HRC Index was down another $30, ending at $620.

The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The forward curve increased at every expiration last week. This was the first time the entire curve shifted meaningfully higher in 10 weeks.

The 2nd month ferrous futures were mostly higher, led by iron ore, which gained 5.7%, while Aussie coking coal lost another 8.7%.

Global flat rolled indexes were mixed last week, with Chinese export HRC, up 1.9%, Midwest HRC was down 4.6%.

The AISI Capacity Utilization was up slightly, 0.2% to 73.7%.

Imports & Differentials

November flat rolled import license data is forecasting a decrease of 19k to 822k MoM.

Tube imports license data is forecasting an increase of 162k to 587k in November.

November AZ/AL import license data is forecasting an increase of 11k to 75k.

Below is November import license data through November 14th, 2022.

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. All the global differentials decreased further this week as U.S. domestic prices continue to fall far more significantly than the rest of the world.

Global prices were mixed last week, with steel out of asia trending higher for the second week, led by Chinese domestic CRC, up 4.6%, while Brazilian domestic CRC was down 10.7%.

Raw Materials

Raw material prices were mixed again this week, with Aussie coking coal continuing to fall, down another 13.3%, while the IODEX iron ore index was up 7.4%.

Below is the iron ore future curve with Friday’s settlements in orange, and the prior week’s settlements in green. Iron ore rallied significantly again last week across all expirations.

The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. All the watched inventories destocked this week. Iron ore port inventories fell for the first time in 4 weeks, albeit only slightly.

Economic Data

The remaining economic data is below.

Base & Precious Metals

Base and precious metal futures were mostly lower last week due to rising covid cases in China and the LME’s decision not to ban Russian material. CME copper was down the most, 7%, LME copper was also under significant pressure and traded lower for 5 consecutive sessions, snapping a 2-week winning streak. This was the most significant weekly drop for copper in more than two months. Silver was also down on the week, as the Fed continues to push back on a dovish pivot.


The U.S. dollar was up 0.55 to 106.97, while the Korean won lost the most and gave back some of last week’s significant gain, down 1.6%.


Last week, the December WTI crude oil future lost $8.88 or 10% to $80.08/bbl. The aggregate inventory level fell 0.3%. The Baker Hughes North American rig count was up 4 rigs, and the U.S. rig count increased by 3 rigs.


The U.S. 10-year yield rose 2 bps, closing the week at 3.83%. The German 10-year yield was down 15 bps to 2.01%, while the Japanese 10-year yield was up 1 bps to 0.25%.


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

Downside Risks:

  • 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