Our goal is to correctly identify changes in the US HRC Steel Market’s supply determinants and demand determinants that are the reasons for a forecasted “normalization” in 2022.

Here are the analytical assumptions that must be applied to properly address changes in the US HRC Steel market:

Assume that the supply of HRC Steel is comprised of manufacturers (firms) who convert iron ore into HRC Steel.

Assume that the market supply of US HRC Steel (measured in tons per year) is the sum of HRC production from both domestic (US) and foreign (international) producers. An increase or a decrease in the total number of domestic and foreign producers will shift the market supply of US HRC Steel.

The HRC Steel market forces obey the Laws of Demand and Supply. They determine an equilibrium price and quantity for HRC Steel.

Assume that a variety of customers (Automobile firms, Heavy Equipment businesses, Metal Building firms, Pipe and Tube producers) generate the demand for HRC Steel. From a consumer income standpoint, the HRC-using final products are classified as normal goods.

Further assume that the demand for HRC Steel is derived from the demand for the final products (Trucks, Buildings, Tubes, Pipes, etc.) Therefore, changes in the demand for final HRC steel-using products are non-price determinants of HRC Steel demand. If the demand increases or decreases for the final products that utilize HRC Steel, then that market event will also increase or decrease increase HRC Steel demand.

Remember that a change in a non-price determinant of HRC Steel demand will cause a shift (increase or decrease) of the HRC Steel demand curve.

Assume that HRC Steel suppliers are profit maximizing firms that react to changes in the regular determinants of supply for any product (such as changes in resource prices, technology, natural production conditions, anticipated future prices, etc.)

Based on the analytical assumptions listed above, here is the real-world fertilizer market scenario that requires our attention:

In 2022, the reduction of trade barriers (compared to 2021’s more restrictive conditions) will cause a rise of imports (supplies) from additional foreign firms into the US HRC Coil Steel Market. In addition, domestic US HRC Steel producers are expected to solve their supply chain problems, and have easier access to more resources (land, labor, capital, etc.) to produce more HRC Steel. The improving supply chain situation has reduced “lead times” and allowed domestic HRC steel producers to deliver more of their valuable product in a shorter amount of time.

Also, compared to 2021, the reduction or elimination of the pandemic-related stimulus payments in 2022 from the US government is expected to reduce consumer income and influence the demand for normal consumer products. In addition, in 2022, the US Federal Reserve is expected to increase interest rates, and reduce consumer borrowing to engage in the purchase of HRC-using final consumer products.

Use a standard supply and demand analysis to predict the combined effects of these events on the 2022 US HRC Steel Market.

What is the direction of change for the US HRC Steel Supply Curve in 2022? Why? What is the independent impact of the supply-side events on the equilibrium price and equilibrium quantity of US HRC Steel?

What is the direction of change for the US HRC Steel Demand Curve in 2022? Why? What is the independent impact of the demand-side events on the equilibrium price and equilibrium quantity of US HRC Steel?

When we account for the effects of the both the US HRC Steel Supply and Demand changes, what are the predicted net effects on the equilibrium price and equilibrium quantity in the US HRC Steel market (increase, decrease or indeterminate), and why? Explain your logic completely.

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