The April 2023 Market Report

There is a saying on Wall Street with regards to the Federal Reserve hiking interest rates to help curb inflation: “Hike until something breaks.”

Interest rate hikes have been on a historic run over the past 12-15 months, currently sitting around 5%. For many, that “breaking” point came on March 10—and then again on March 12—marking the two biggest bank closures in U.S. history of Silicon Bank and Signature Bank, respectively.

But is the “breaking” point still yet to come? And could manufacturing business be in the crosshairs? A look at the two charts below shows that as lending standards get more difficult, demand for loans are on the decline.

“Loans and credit are the lifeblood of the economy, and the data is showing that the ability to get money is becoming more and more difficult,” says Nick Webb, Ryerson’s director of risk management, commodity hedging. “As we go into second half of the year, these scenarios could start to feed into the economy. I am not saying that lending activity will suddenly cease to exist, but I do believe that bank executives across the board are having a slightly higher level of scrutiny of lending practices.”

Could this compound on an already weakening manufacturing environment in the U.S.? According to the Institute for Supply Management, U.S. manufacturing activity dropped to the lowest level in nearly three years in March. This was driven in part by continued contraction in new orders as demand for goods has cooled amid rising borrowing costs.

Manufacturing is a major component of the American economy, a catalyst for jobs creation, and a key to economic prosperity. The Federal Reserve at a critical crossroads: to hike or to not hike rates going forward. The route it takes must protect against any further "break" in manufacturing.




Why Are Capacity Utilization Rates Down?

Mill capacity utilization rates are a measure of a mill’s physical capability to produce material compared to what they are actually producing.

During the peak months of COVID-19, some mills were reportedly running at a utilization rate above 90%. This is considered close to the maximum output of a steel mill. Juxtapose that to today, with U.S. mills running at close to 75% capacity.

So, how did we get to this point? During the latter half of 2022, amid declining lead times and lower prices, the expectation from many distributors was that demand would not be as robust in Q1 2023, and thus committed less to domestic mills. This put downward pressure on the spot market and pricing by affecting supply.


Today, mills have the ability to increase production, but are running at lower capacity.

Also of note, a total of six planned outages are scheduled between March and May. This would take roughly 331,000 tons out of production collectively during that timeframe.

Going forward, the expectation is that capacity should improve through Q2 and the second half of 2023.

Could a Nickel Shortage Turn to a Surplus?


More than 300 million pounds of nickel are available in the world today. Roughly 55% of that supply is considered class 1 nickel, with the balance of available nickel in the world being class 2.

Class 2 nickel products commonly have a lower nickel content than class 1 and are used in stainless steel production as producers can take advantage of the iron content. It is important to note that class 2 nickel is not traded on the LME and there is a large volume of supply coming online from areas of the globe like Indonesia.

Inventories of class 1 nickel have been tight over the past few months, forcing many buyers to opt for class 2 nickel, as evidenced by the chart on the lower left.

However, going forward we could be facing a surplus of class 1 nickel (as depicted in the chart on the lower right). This does add some encouragement to the market for nickel moving forward.

In other stainless steel news, roughly halfway through the May surcharge averaging period, indications are that 304 surcharges will be relatively flat while 316 will decline and 430 will rise.
Chrome prices will add roughly 4-5 cents/lb. for May, but it may not offset the nickel decline.