In domestic ferrous markets, many of the prevailing trends and sentiments still appear to be intact. Physical transactions remain sparse and occur over a wide range of prices. Spot prices continue to slide lower amid tight inventory management, weak manufacturing demand and declining global prices. There have been some notable changes in the market over the last week that are supportive of prices, but they seem unlikely to stop the current downtrend.

First, the Trump administration increased tariffs on Turkey’s steel imports from 25% to 50% after Turkey’s forces moved into Syria. While current price differentials between the U.S. and Turkey are not conducive to bringing in material, this action will prevent any future imports that may have been in discussion. Additionally, it display’s the administration’s intention to maintain current tariffs, removing the possibility of a reversal of the Section 232. However, the lack of imports this year from Turkey as well as the harm to the country’s economy and the global ferrous metals market should prevent any significant influence on domestic prices.

The current downtrend in HRC prices has corresponded with a similar downtrend in scrap prices. Mills have accepted negotiations at lower prices because their raw material costs have also slid throughout the year, allowing them to achieve profitable sales at low prices. Below is a graph of the 2^nd month HRC future (orange) and the 2^nd month #1 Busheling future (white).

After a large decline in scrap prices in October, the market has stabilized. Current expectations are for scrap prices to rise from current levels into yearend, which will support the domestic HRC price. Clarity on the November scrap market will provide insight into the outlook for the HRC market.

Finally, this week we saw lead times stabilize and push out slightly as upcoming planned outages tighten select markets. Removing production is fundamentally supportive of prices, as we saw in June with US Steel idling 2 furnaces ahead of multiple price increase announcements. However, for the mills to be able to successfully push a price increase, they have to be ready to turn away orders at lower prices. We have seen no indication of this as mini-mill profitably remains strong.

Looking at the futures market, this week saw buying interest in 2020 expirations for the first time in several weeks. This seems logical as we are in the mist of contract season, and many end users are trying to lock up tonnage for next year in order to understand costs and forecast performance. If you are not taking this opportunity to lock in prices and tonnage for next year, you are likely missing out because your competitors are.