Over the last two weeks, there have been several news stories hitting the headlines, all resulting in strengthening bullish sentiment in ferrous markets. Domestic mills pushed a third price increase announcement, led by US Steel’s $30 increase on the Friday before Thanksgiving. Over the holiday weekend, US Steel’s Gary Works facility suffered flooding from a water pipe leak, causing an unplanned outage. Finally, President Trump tweeted that steel and aluminum tariffs would once again be placed on Brazil and Argentina because of the depreciation of their currencies. These stories should remind us that accurately predicting the market price is impossible, and uncontrollable events, such as weather, equipment malfunctions, geo-politics and even tweets, pose significant price risk, especially to the upside. It ADDS risk to your business if you are not hedging against them.

The immediate price reaction to the above headlines was subdued as the price increase announcement was expected, the outage duration is expected to be short and minimal in terms of tonnage, and annual quotas have reduced Brazilian slab imports through year-end.  However, spot prices continue to grind higher, and mills are now asking for $600/st for HRC, over $150 increase from the spot price in October. A driver of the recent domestic price rally is the strength in raw material and global ferrous prices. Below are charts of busheling scrap, Turkish scrap and China HRC showing similar price rallies over the last two months.

The strength in these prices, as well as prices in Europe and CIS, supports the move higher in domestic flat rolled prices, and encourages further price increases. The HRC futures curve (below) is currently displaying these optimistic expectations, with all of 2020 priced just below $600. With spot and future prices at similar levels, the curve presents a great opportunity for buyers looking into 2020 to hedge against prices increasing again from the current levels.