Hot Rolled Futures: Work Hardened or Metal Fatigue

Editor’s note: SMU contributor Bryan Tice is a partner at Metal Edge Partners, a firm engaged in Risk Management and Strategic Advisory. In this role, he and the firm design and execute risk management strategies for clients along with providing process and analytical support. Before joining Metal Edge Partners, Bryan held a variety of commercial leadership roles involving purchasing, sales, and risk management for Feralloy Corporation, Cargill Steel Service Centers and Plateplus Inc. You can learn more about Metal Edge at www.metaledgepartners.com. Bryan can be reached at Bryan@metaledgepartners.com.

Last week at this time, many SMU readers had returned from an informative three-day session at the Steel Market Update conference in Atlanta, attempting to crystalize the many divergent views of what the market will look like in 2022. A week removed, most market participants that I talk with are still processing and formulating opinions or challenging assumptions of the analysts and CEOs who spoke. The contrast of opinions reminds me of the metallurgical terms “work hardening” and “metal fatigue.” Work hardening is a process whereby metal hardness increases through repeated deformations. Metal fatigue on the other hand occurs when repetitive stresses result in fracture and possible structural failure. I am no metallurgist, but I do know that these outcomes are typically a function of chemistry, time and temperature. With carbon flat rolled prices near or above (depending on product) $2,000/t, I’m having a hard time classifying whether we are witnessing work hardening or metal fatigue. Looking at the reaction of the forward curve from the Friday before the conference to yesterday, it seems the market might be leaning toward the bull case. We have seen some of the nearby months move up over $100/t with some 2nd half months in 2022 having gapped +$50/t higher in just the last few weeks.