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Key takeaways:
As a result of the underlying economic factors and policy uncertainty, steel demand is weak, but the supply disruption from tariffs is supporting prices.
Since the start of the second Trump administration, and the imposition of tariffs and policy uncertainty, steel prices have been upheld higher than the fundamentals would suggest.
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Indeed, in the first quarter of 2025, US steel prices surged upward on supply fears due to announced, and threatened, tariffs on imported steel and downstream goods. HRC hit over $956 per short ton on March 14, slid back, but then bumped up again slightly after the Liberation Day tariff announcements.
Each announcement brought new policies, further uncertainty, immediate higher prices, and then an easing of those prices. The price easing lasted through the start of the fourth quarter of 2025.
That easing was and is the result of supply/demand fundamentals which do not support such high prices. And, the downside price risk grows; drivers and indicators of construction, industrial and manufacturing activity continue to sputter, with inflation a lesser, but growing concern. Mortgage rates have moderately fallen, while job and wage growth have lost steam.
But, price surges reflect the risk premium of uncertainty surrounding tariffs, tariff policy and the legality of these policies. Fastmarkets senior analyst Felix Bello adds, “Nevertheless, the inordinate number of comments, edicts and proposals feeds uncertainty which continues to haunt and taunt businesses.”
Moreover, the tariffs created a need for changes in the steel supply chain, which is also supporting prices in the near-term. Receding imports force traders, SCs and Processors to switch sourcing to higher-priced domestic mills, and change business models to reflect value-added processing and services.
But, import substitution is not a one-for-one ton exchange to domestic supply due to reduced lead times in shipping, leading to overall lower inventory required along the supply chain.
Imports and traders will still be present with products that are not produced in the domestic market – electrical steels, AR400, and AR500 plate, and other specialty products, but a high volume of supply will be replaced domestically.
Nevertheless, this new domestic market dynamic will still be subject to an economy facing stern headwinds and shifting supply chain patterns in addition to the aftermath and response to the latest Supreme Court decision on the legality of some tariffs. This decision brings additional uncertainty to an economy that does not need any more of it.
Ultimately, the decision may bring economic fundamentals back into focus with prices responding to supply/demand movements, instead of policy. As such, prices through 2026 should reflect tepid demand and available capacity, and slowly trend down while the administration ponders its next move.
It will take a few months to sort through the impact of this decision and bring about a new normal. In the meantime, steel market participants are watching a number of wildcards that will affect the market going forward, including:
Increased costs diminished the competitiveness of downstream industries, which will weaken steel demand and demand for finished goods. These effects will trickle down to consumer confidence, sentiment and could weigh on mid-term elections.
The USMCA is set to be renegotiated this year, potentially leading to drastic changes in the agreement.
The Supreme Court ruling is only the beginning of the arguments over the legality of tariffs. Many countries negotiated trade agreements following the IEEPA imposition. Now that it was struck down, those deals are in question.
More rate cuts are expected in 2026 as long as inflation continues to hold or move lower. This will affect consumer spending and purchasing power.
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