Fundamental Report
Supply-Side Takeaway:
The existing surplus of material remains, as import arrivals retreat down to their long-term average. Given 3 weeks of a negative differential, room to the downside is limited, however, current levels of elevated domestic production would likely place a ceiling on any nascent rally in domestic steel pricing.
Imports and the Domestic – Global HRC price differential expanded for the second consecutive week, although it remains negative. The contraction was the result of the domestic spot price increasing for the first time since April, while the global average price slipped further. On the imports side, preliminary data for July indicates arrivals rising just shy of 900k, a notable jump from June’s final census data, which was marginally above the long-term average and slightly below our estimates. Finally, domestic production scaled back, ending the two-week upward trend that reached a level exceeding the post-pandemic average.
HRC Spot Prices – US Domestic & Global
- The global HRC spot price declined to $670 from $676. This dip was mainly due to a -$16 in China, a -$11 in Turkey, and a -$6 in Korea.
- The Domestic – Global HRC spread expanded further, widening from -$25.70 to -$14.81, though remains negative.
Total Sheet Imports (s.ton)
- This week’s imports estimated sheet arrivals for July indicate an increase from June’s easing, rising to 891k tons from June’s final census figure of 825k.
- Given the current negative differential, it is highly unlikely that we would see another surge in arrivals for the remainder of the year. That said, we do anticipate some volatility in these figures as we push below the longer run “neutral level”.
Domestic Production (s.ton)
- For the week ending on July 27th, capacity utilization ticked down by 4% to 77.9% and domestic raw steel production declined to 1.729m from 1.739m/tpw (the highest level in 7 weeks).
- This brings the year-to-date production to 50.772m, operating at a rate of 6%, -2.1% below this point last year.