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Market Commentary

Market Commentary section will return after the Thanksgiving Holiday.

Risks

Below are the most pertinent upside and downside price risks:

Upside Risks:

  • Unplanned & extended planned outages
  • Recovering domestic and global manufacturing demand
  • Chinese economic stimulus measures
  • Low current and expected import levels
  • Domestic supply disruption
  • Further section 232 tariffs and quotas restricting supply
  • Chronically low inventory levels and restocking
  • Weakening U.S. dollar

Downside Risks:

  • Increased domestic production capacity
  • Declining raw materials prices
  • Tariff resolution and/or 232 exclusions
  • Trade War Fallout
  • Weaker demand in construction and automotive
  • Weak global economics/PMIs
  • Political & geopolitical uncertainty
  • Increasing import differentials

HRC Futures

The Platts TSI Daily Midwest HRC Index was down $2.75 to $527.50.

Platts TSI Daily Midwest HRC Index

The CME Midwest HRC futures curve is below with last Friday’s settlements in white. The curve shifted lower across all expirations and remains flat in 2020 near $570.

December ferrous futures were mixed. The iron ore future gained 4.2%, while the Nasdaq shred future lost 2.7%.

The global flat rolled indexes were mostly higher. Midwest TSI CRC was up 4.9%, while Midwest TSI HDG was down 1.2%.

The AISI Capacity Utilization Rate was up 0.6% to 81.1%.

AISI Steel Capacity Utilization Rate (orange) and TSI Daily HRC Price (white)

Imports & Differentials

November flat rolled import license data is forecasting a decrease of 160k to 584k MoM.

All Sheet Imports (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)

Tube imports license data is forecasting a MoM increase of 19k to 370k tons in November.

All Tube Imports (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)

All Sheet plus Tube (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)

AZ/AL import license data is forecasting a decrease of 6k in October to 56k.

Galvalume Imports (white) w/ 3 Mo. (green) & 12 Mo. Moving Average (red)

Below is October import license data through November 19, 2019.

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. The Midwest HRC price moved slightly lower, pulling all the global differentials slightly lower.

SBB Platt’s HRC, CRC and HDG pricing is below. The Midwest CRC price was up 4.9%, while the HDG and HRC prices were down 1.2% and 0.5%, respectively. Globally, the Turkish and Chinese HRC export prices were up, 3.5% and 2%, respectively.

Raw Materials

Raw material prices were mostly higher, led by the SGX ore futures, which gained another 4.2%, while Australian coking coal was down 1.7%.

Below is the iron ore future curve with Friday’s settlments in orange, and the prior week’s settlements in green. The curve shifted higher across all expirations again this week, most significantly in the front.

SGX Iron Ore Futures Curve

The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. All of the watched Chinese inventory levels were lower, led by Rebar down 9.6%.

Economic Data

The remaining significant economic data is below. This week, the November Kansas City Fed Manufacturing Index came in flat and below expectations of -2 at -3.

Base & Precious Metals

Base and precious metal future prices were mixed. LME zinc lost 3.2% while LME nickel lost another 2.3%.

LME Zinc

LME Nickel

Currencies

The U.S. dollar gained 0.27 points to 98.27, while the Korean Won and Mexican Peso were 1.1% and 1% lower, respectively.

US Dollar Index

Korean Won

Mexican Peso

Energy

Last week, the January WTI crude oil future lost $0.61 or 1.1% to $57.11/bbl. The aggregate inventory level was up 0.3% and crude oil production remains at 12.8m bbl/day. The Baker Hughes North American rig count was flat, while the U.S. count lost three rigs.

January WTI Crude Oil Futures (orange) vs. Aggregate Energy Inventory (white)

Front Month WTI Crude Oil Future (orange) and Baker Hughes N.A. Rig Count (white)

Rates

The U.S. 10-year yield was down 6 bps, closing the week at 1.77%. The German 10-year yield was down 3 bps to minus 0.36%, while the Japanese 10-year yield was essentially flat at minus 0.07%.

U.S. Ten-Year Bond Yield

Japanese Ten-Year Bond Yield

German Ten-Year Bond Yield

Equities

Below are equity indexes and steel related companies:

The list below details some upside and downside risks relevant to the steel industry.  The orange ones are occurring or look to be highly likely.  The upside risks look to be in control.

Upside Risks:

  • Unplanned & extended planned outages
  • Recovering domestic and global manufacturing demand
  • Chinese economic stimulus measures
  • Low current and expected import levels
  • Domestic supply disruption
  • Further section 232 tariffs and quotas restricting supply
  • Chronically low inventory levels and restocking
  • Weakening U.S. dollar
  • Strong global flat rolled prices
  • U.S. Infrastructure bill
  • Low and declining interest rates
  • Potential Russian sanctions cutting off Russian steel
  • China strict steel capacity cuts/China getting serious about curtailing steel production
  • Energy industry rebound
  • Graphite Electrode Shortage
  • Unexpected inflation

Downside Risks:

  • Increased domestic production capacity
  • Declining raw materials prices
  • Tariff resolution and/or 232 exclusions
  • Trade War Fallout
  • Weaker demand in construction and automotive
  • Weak global economics/PMIs
  • Political & geopolitical uncertainty
  • Increasing import differentials
  • U.S. Recession
  • Falling global flat rolled prices
  • Declining rates of growth in manufacturing/demand destruction
  • Domestic automotive industry under pressure
  • Tightening financial conditions pressuring auto sales driven by sub-prime financing
  • Chinese restrictions in property market
  • The Chinese Financial Crisis
  • Unexpected sharp China RMB devaluation
  • Increasing import differentials