American Metal Market plans to launch a daily hot-rolled coil index in response to unprecedented steel market volatility sparked by Section 232, the renegotiation of the North American Free Trade Agreement (Nafta) and a potential trade war with China.
The maximalist trade policies of the Trump administration - unpredictable in the best of times - have made US steel prices - volatile in the best of times -harder than ever to forecast.
American Metal Market has concluded that a daily hot-rolled coil index is necessary because existing indices - even those entrenched for decades along the steel supply chain - are not nimble enough to react to today’s dynamic steel market.
The American Metal Market US Midwest Hot-Rolled Coil Index is due to be rolled out on a daily basis on Monday October 1 following a one-month consultation period.
“Increasing volatility has made it more important than ever for businesses to keep track of pricing. A properly constructed daily price index could help drive better price transparency for its users,” Tim Stevenson, partner at commodity advisory Metal Edge Partners, said in an email to American Metal Market on Tuesday September 4.
A daily price makes more sense than a weekly price because the world has become more volatile and because information moves faster than ever, Mitch Robertson, partner at commodity-derivatives advisory Ferrometrics told American Metal Market on September 4.
For a daily hot-rolled coil index to be viable, it will need “buy-in” from the financial community and the physical marketplace - something that has already happened in other ferrous commodities such as iron ore and scrap, he said.
“There are hurdles. There are challenges, but as more participants begin trading futures, a daily price entices liquidity and helps cement contract viability, and thus a sustainable paradigm shift.” Robertson said.
Section 232, Nafta talks and a possible trade fight with China - any one of these could have a big impact on US steel prices. US President Donald Trump has taken on all three at once.
You could wait for the experts to tell you how and when this thicket of US trade policies (and global reaction to them) might shape the domestic steel market.
You might also find that a daily price provides a better crystal ball.
American Metal Market’s weekly hot-rolled coil index has tracked closely with Section 232 developments over the last year.
Case in point: The index hit a one-year low of $29.33 per hundredweight ($586.60 per ton) in mid-October when the Trump administration focused on tax reform and moved Section 232 to the back burner.
Prices began to rise in November along with rumors of a Section 232 revival. They soared in mid-January, when US Commerce Department Secretary Wilbur Ross submitted a key report on the trade action to Trump.
American Metal Market’s weekly hot-rolled coil index made big gains, nearly $2 per cwt, in the weeks leading up to that announcement.
Hot-rolled coil prices again shot higher in the first week of March - past $40 per cwt for the first time since 2011 - after Trump shocked the steel industry and the world by announcing that he would impose blanket 25% tariffs on steel imports, a more severe measure than even the most draconian options furnished by Ross.
A daily price is more nimble
American Metal Market’s weekly hot-rolled coil index appeared to anticipate the move. Hot-rolled coil prices gained 7.6% - or $1.48 per cwt - in the two weeks preceding Trump’s March 1 proclamation.
It is tempting to consider whether daily pricing might have made it possible for steel market participants to spot trends and to anticipate events sooner - and to adjust accordingly.
Daily prices are also necessary because, in the Age of Trump, the steel trade landscape can change in a matter of days - sometimes in a matter of hours.
One recent example stands out: Trump presidential proclamation circulated later that day. And US Customs and Border Protection was collecting the increased duties at 12:01 am Eastern time the following Monday.
A US president, on matters of trade, has powers akin to those of a king - which means Trump could loosen Section 232 tariffs and quotas as quickly as he had tightened them.
In fact, he already has. Trump last week eased restrictions on steel from Argentina, Brazil and South Korea. American Metal Market's hot-rolled coil index subsequently fell to $42.68 per cwt, down 1.41% from $43.29 per cwt the week prior.
You need a more responsive price - now
The need for a nimble, daily price is evident not only in retrospect but also ahead of what is likely to be a volatile fourth quarter and perhaps a rockier 2019.
What might hot-rolled coil prices do ahead of US mid-term elections in November? What might the outcome of those elections mean for the Trump presidency, US trade policy and Section 232?
Regardless of which party wins in November, it is worth recalling that the administration of former president George W Bush kept Section 201 - another self-invoked trade action that sparked an international uproar - in place only temporarily.
How long will Trump stick to Section 232? Might international pressure make him blink on one of his signature trade policies?
It is also worth recalling that steel prices go up fast but often fall even faster. Might American Metal Market’s daily US Midwest Hot-Rolled Coil Index provide you an advance indicator of when the market - and your contracts linked to other indices - might inflect?
American Metal Market staff thinks the answer is "yes." And, if American Metal Market prices already tell you which way your index is going, why not use our index instead?
The pricing notice about the new daily index is here. To provide feedback, or if you would like to become a data submitter, please contact steel reporter at email@example.com. The subject line should read "FAO: , re: US Midwest Hot-Rolled Coil Index."