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Whirlpool Corporation believes raw material costs for steel and plastics peaked in 3Q, and could fall into the first half of 2023, as they expect appliance demand to fall. The company cited inflationary pressures and a weakening economy for the expected pullback in appliance demand into next year. They, therefore, cut production volumes by 35% last quarter “in anticipation of a temporary soft demand environment.” Sales have already fallen, as revenue contracted by 10% in North America last quarter, and deeper cuts were seen in Europe and Latin America. Whirlpool’s net sales totaled $4.784 billion in 3Q, down 12.8% compared to 3Q 2021. They expect full-year 2022 revenues to total $20.1 billion, down approximately 9% from 2021. (Source: Argus, Whirlpool) |
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Are your thoughts similar to Whirlpool’s? Or do you wish to start hedging steel input costs now? Prompt month (November) CME HRC futures are down nearly 56% from the highs of mid-March, with the last trade at $682/st (7:00 AM CST). This could be a good time for steel end-users to hedge future needs into 2023 by buying HRC swaps. Using swaps converts a variable cost into a fixed cost, thereby ‘locking in’ a price for the hedged steel. Since HRC swaps are thinly traded, we suggest using limit orders to establish a specific steel price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (10/28/2022) |
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Note: Clients with AEGIS Platform access can see this and other research, plus hedge portfolio reporting and tools here. |
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AEGIS Insights |
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10/26/2022: AEGIS Factor Matrices: Most important variables affecting metals prices 10/05/2022: European Aluminum Smelters Might Have Negative Margins Through 2023 8/31/2022: Will Chilean Production Issues Drive Copper Prices Higher? |
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10/27/2022: US Steel earnings, steel production drop 10/27/2022: Glencore to stick with Rusal's aluminium in 2023 -sources 10/26/2022: US steel imports lowest since Feb 2021 10/26/2022: Whirlpool cuts production by 35pc as demand falls 10/25/2022: US HRC: Prices flat, market sees lower offers 10/25/2022: Cliffs aims to increase quarterly steel production 10/25/2022: Norsk Hydro calls for EU, US sanctions on Russian aluminium 10/24/2022: China Sept aluminium output rises 9.3% y/y as power restrictions ease 10/24/2022: LME Week: Al market braces for the unknown 10/21/2022: Alcoa reduces 2022 alumina, bauxite outlook |
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Important Disclosure: Indicative prices are provided for information purposes only, and do not represent a commitment from AEGIS Hedging Solutions LLC ("Aegis") to assist any client to transact at those prices, or at any price, in the future. Aegis makes no guarantee to the accuracy or completeness of such information. Aegis and/or its trading principals do not offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program. Certain information in this presentation may constitute forward-looking statements, which can be identified by the use of forward-looking terminology such as “edge,” “advantage,” “opportunity,” “believe” or other variations thereon or comparable terminology. Such statements are not guarantees of future performance or activities.
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