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.