Since mid-August, the Midwest assessed price has been stable around $800. That price was supported by a Houston price above $700 and the trend of lower import arrivals, which restricted options for already reluctant buyers. However, this dynamic changed last week, and it will put pressure on the mills to further reduce production or quickly compete with significantly lower prices from abroad. The chart below shows all sheet import data, beginning in January 2017 with the dotted line representing the 12-month moving average.
After September import arrivals briefly fell to the lowest level since April 2021, the preliminary data suggests a sharp rebound back up to 1M tons-per-month and just below the moving average. On its own, this more than replaces the gap created by the recent domestic production cuts and furnace idling, but it is even more of a significant signal when considering the price of these arrivals. The chart below shows the Midwest domestic HRC price in dark blue and the Houston delivered HRC price in orange.
As the chart shows, the Houston price does not update as frequently as Midwest assessed pricing, but last week the price fell 9.7%, down to $650. This is important because the Houston price is a good representation of the import delivered price. While there are exceptions, the Midwest price tends to converge with the Houston delivered price. If there are no further shocks to the supply and demand dynamic, we anticipate the two prices to converge closer to the current Houston price.
- A sudden dovish shift in financial policy leading to less aggressive rate hikes
- Strategic outages overshooting and causing production to fall below demand levels
- China reopening its economy with further stimulus measures
- Energy issues abroad curtailing global production
- Easing supply chain restraints and labor shortages causing an increase in activity
- Economic slowdown caused by increasing interest rates and sustained restrictive policy from the Federal Reserve
- Decreasing input costs allowing 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”
All of the below data points are as of October 14, 2022.
The Platts TSI Daily Midwest HRC Index was unchanged at $760.
Platts TSI Daily Midwest HRC Index
The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The curve continues to be under significant pressure with the 4Q22 and 1Q23 both trading below current spot prices.
The 2nd month ferrous futures were mostly lower, with Midwest busheling down 5.1%, while Aussie coking coal continues to buck this trend, up another 3.6%.
Global flat rolled indexes were mostly lower again, led by Antwerp HRC, down 7.5%, while Black Sea HRC was up 7.1%.
The AISI Capacity Utilization was down sharply, 1.8% to 75.3%.
AISI Steel Capacity Utilization Rate (orange) and Platts TSI Daily Midwest HRC Index (white)
Imports & Differentials
October flat rolled import license data is forecasting an increase of 204k to 981k MoM.
All Sheet Imports (white) w/ 3-Mo. (green) & 12-Mo. Moving Average (red)
Tube imports license data is forecasting a decrease of 83k to 476k in October.
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)
October AZ/AL import license data is forecasting a decrease of 41k to 59k.
Galvalume Imports (white) w/ 3 Mo. (green) & 12 Mo. Moving Average (red)
Below is October import license data through October 10th, 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. Differentials increased for China, Korea and Europe but fell for Turkey.
Global prices were mostly lower this week, led by Northern European HRC, down 6.8%.
Raw material prices were mixed this week, with Aussie coking coal up 3.2%, while East Coast shredded was down 1.7%.
Below is the iron ore future curve with Friday’s settlements in orange, and the prior week’s settlements in green. Last week, the entire curve was lower, much more significantly in the back.
SGX Iron Ore Futures Curve
The ex-flat rolled prices are listed below.
Last week, the November WTI crude oil future lost $7.03 or 7.6% to $85.61/bbl. The aggregate inventory level rose 0.9%. The Baker Hughes North American rig count increased by 8 rigs, and the U.S. rig count increased by 7 rigs.
November 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)
The list below details some upside and downside risks relevant to the steel industry. The bolded ones are occurring or highly likely.
- 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
- 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