Market Commentary

Persistent inflation and the rapid escalation in interest rates over the last 6 months have culminated in demand destruction and a worsening outlook in the U.S. economy and across the globe. Our domestic steel industry, while holding up better than many other countries, has also been impacted by the downward pressure, with the HRC price falling 48% from its peak in April. In a clear reaction to the slowing global demand, domestic production and imports have also been trending lower. The chart below shows sheet steel imports (white) and their 3-month moving average (green).

Since peaking in November of last year, import arrivals have been trending lower but the moving average has been surprisingly stable around 1M tons per month, well above normal levels in the post-232 era. While the data is still preliminary, it appears that steel sheet imports in September will fall to the lowest level since March 2021. Furthermore, the chart below shows the U.S. domestic capacity utilization (AISI), which is now at the lowest level since the first week of January 2021.

These two closely watched data points indicate a proactive reduction in supply, even culminating in the indefinite idling of multiple BOF mills both domestic and abroad, an action typically viewed as a “last resort.” However, our view is that neither of the supply side factors will be enough of a catalyst to cause a rally. Instead, we will look for destocking inventories and increasing lead times as signals that the floor has been reached. Depending on how long it takes for this to occur, these supply-side factors will play a key role in how high prices climb once demand concerns abate.


Below are the most pertinent upside and downside price risks:

Upside Risks:

  • 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


Downside Risks:

  • 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”

HRC Futures

The Platts TSI Daily Midwest HRC Index was down another $10 to $780.

The CME Midwest HRC futures curve is below, with last Friday’s settlements in white. The curve traded higher early in the week before erasing those gains on Thursday and Friday, leaving most expirations only slightly higher on the week.

The 2nd month ferrous futures were mixed with Aussie coking coal gaining another 4.3%, while iron ore lost 1.4% going into the Chinese holiday week.

Global flat rolled indexes were mixed last week. The most significant moves came from Chinese spot HRC which was up 1%, which the Chinses Export price was down 2.3%.

The AISI Capacity Utilization was down another 0.5% to 76.4%.

Imports & Differentials

September flat rolled import license data is forecasting a significant decrease of 219k to 776k MoM.

Tube imports license data is forecasting an increase of 142k to 585k in September.

September AZ/AL import license data is forecasting a decrease of 10k to 101k.

Below is September import license data through September 25th, 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 decreased slightly for all the watched countries, apart from Northern Europe, and China which were both weaker than U.S. domestic HRC.

Global prices were mostly lower, led by the Southern European HRC price, which was down 5.1%, while Mexican HRC and CRC were up 0.7%.

Raw Materials

Raw material prices were mostly stable or higher again this week, with Black Sea pig iron up 9.7%, while the IODEX iron ore index was down 3.7%.

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 shifted lower again, most significantly in the back of the curve.

The ex-flat rolled prices are listed below.

Chinese Inventory

Below are inventory levels for Chinese finished steel products and iron ore. Each of the watched inventory levels have continued sharply destocking after a slight uptick in HRC & Rebar, three weeks ago.

Economic Data

The remaining significant economic data is below.

Base & Precious Metals

Base and precious metal futures mixed last week, with LME nickel down 9.8%, while gold was up 1%.


The U.S. dollar was down 0.85 to 112.17, while the British pound gained 2.9%.


Last week, the November WTI crude oil future gained $0.75 or 1% to $79.49/bbl. The aggregate inventory level was down 0.7%. The Baker Hughes North American rig count decreased by 1 rigs, while the U.S. rig count increased by 1 rig.


The U.S. 10-year yield was up another 14 bps, closing the week at 3.83%. The German 10-year yield was up another 8 bps to 2.11%, while the Japanese 10-year yield was up 1 bps to 0.24%.


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