Final Thoughts
Final Thoughts
Written by Tim Triplett
October 16, 2020
Have you ever attended a wedding and thought to yourself as you looked at the lovely young bride and her much older groom: “How is this going to work?” The marriage of U.S. Steel and Big River Steel is raising some of the same doubts.
U.S. Steel announced today that is has exercised its option to acquire the remaining 50.1 percent stake in BRS for $774 million in cash. The move comes just a year after USS originally bought a 49.9 percent interest in BRS with a four-year option to buy the rest, thanks to a steel market that is booming, despite the pandemic, with hot rolled prices near $900 a ton.
U.S. Steel sees its future in combining the “best of both,” giving it the flexibility to produce the highest quality products through the integrated steelmaking process and the most cost-effective and green products through the electric arc furnace process–whichever best meets each customer’s needs.
Commented a couple of steel buyers to SMU: “The purchase of Big River by USS is significant since it combines an old-line integrated steelmaker with a cutting-edge EAF sheet producer. USS is much different than BRS, however. I honestly don’t think the two cultures fit. Something will have to give.”
“The big question for me is how commercial will be run after the sale. Both companies couldn’t be more different in how they go to market. I don’t think we will see any impactful change until late 2021,” said one buyer.
“It’s too early to know what impact the USS acquisition of BRS will have on the steel industry because there are too many variables in play right now,” commented a tubular exec, “including Cleveland-Cliffs’ acquisition of ArcelorMittal’s North American assets, COVID, supply/demand and the Biden administration on commerce and trade.”
Commented an exec from a large service center: “I don’t expect any short-term changes in how each business goes to market. But the market today is feeling the changing position of integrated production. The hot strip mills at Great Lakes and Dearborn represent almost 8 million tons of coil production capacity that’s out of the market. The combination with BRS will give USS an option to close the hot strip at Granite City, another 3.8 million tons of capacity. The decision to continue operating GC, or not, is the biggest potential market change.”
Added another source: “Cynical me says it might somehow kill off the creativity and spirit that BRS brought to the table, and that is not good. But I am hoping the BRS attitude is infectious and helps bring USS into the 21st century.”
May they live happily ever after.
It’s time to register for the Port of Tampa Steel Conference which is slated for Feb. 2, 2021. SMU has agreed to co-host the event, and John Packard has put together an impressive lineup of speakers. Look for more details on the conference elsewhere in this issue.
As always, your business is truly appreciated by all of us here at Steel Market Update.
Tim Triplett, Executive Editor
Tim Triplett
Read more from Tim TriplettLatest in Final Thoughts
Final Thoughts
Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.
Final Thoughts
Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.
Final Thoughts
I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.
Final Thoughts
I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?