Hot Rolled Coil prices surged on June 25, with COMEX futures settling at $1,193/ton, up $70 or 6.2%. The rally was triggered by the US Department of Commerce's announcement of stricter enforcement of Section 232 import quotas for flat-rolled products. The new rules reduce allowable imports from Mexico by 15%, effectively closing a loophole that had allowed transshipment.
The Mexico channel had been a significant source of imports. Since the beginning of 2025, monthly flat-rolled steel imports from Mexico averaged 310,000 tons, much of it originating from slab sourced outside North America. The new enforcement measures require that steel milled in Mexico be made from either Mexican-sourced slab or slab from a country with Section 232 exemption. This effectively blocks slab sourced from non-exempt countries.
The announcement comes at a time when the US domestic market was already tightening. US steel mill capacity utilization hit 78.2% in the week ending June 20, up from 77.1% the prior week and above the 75% threshold that historically correlates with pricing power for domestic mills. The trend toward higher utilization has been consistent since April.
On the demand side, the US construction sector continues to show resilience. The Dodge Construction Network reports that non-residential construction starts were up 7% year-over-year through May, with manufacturing and data center projects leading the way. Combined with steady automotive demand (+1.2% YoY vehicle production), the demand picture supports the price rally.
The SHFE HRC contract in China was up only marginally — 0.3% to 3,497 CNY/ton — reflecting the divergence between US and Chinese steel markets. Chinese HRC exports to the US are negligible, and the Chinese market is more influenced by the property sector weakness. The SHFE-US spread has widened, reducing the relevance of Chinese pricing for North American procurement decisions.
HRC forward curves are in backwardation, with Q4 2026 futures trading at $1,145 against Q3 2026 at $1,193. This suggests the market expects the current tightness to ease as additional domestic supply comes online. Nucor and US Steel have both announced that previously idled capacity will be restarted in Q3, which should add approximately 250,000 tons per month to the domestic market.
This is a supply-side rally, not demand-driven. If you have significant HRC exposure, the backwardation in forward curves suggests the market expects prices to ease. Avoid chasing the spot market. Consider Q4 and Q1 2027 contracts at $1,100-$1,150 if available. The Mexico import restriction adds 300,000+ tons per month of demand that US mills must fill — expect them to push prices toward $1,250 before new capacity can catch up.