SMU Community Chat

Tanners Q&A, Round 2: Scrap, U.S. Steel Exports and Infrastructure

Written by Michael Cowden

SMU’s Community Chat webinar with Wolfe Research metals and mining managing director Timna Tanners last week was our second-best attended ever.

With more than 800 registered attendees, Tanners topped her own previous record. Barry Zekelman, executive chairman and CEO of Zekelman Industries, still holds the title. But not by quite as wide a margin.

We received more questions during the webinar than we were able to respond to during our 45-minute time slot, so we followed up with Tanners to get answers to some of the queries we couldn’t get to live.

Below is a lightly edited version of Round 2 of our Q&A with Tanners. Also, public service announcement, Tanners will speak at the Tamp Steel Conference on Feb. 14-16. You can register here.

Timna TannersQuestions from the SMU Community are in bold. Answers are from Tanners.

With scrap likely to become more tight and therefore expensive, will integrated mills owning their own raw materials have a big enough cost advantage to pay to clean up their carbon emissions?

As far as scrap, yes, integrated mills could have an advantage absent a carbon tax, which doesn’t seem to be on the table yet. Ultimately, new DRI/HBI capacity will be needed to alleviate the squeeze on scrap needs.

Where will the necessary scrap come from for the new mills?

Ultimately, new DRI/HBI will be necessary. Pig iron imports can be a short-term solution. But they contradict the green agenda espoused by minimill producers. Pig-exporting countries are largely Brazil, Russia, and Ukraine – so any sanctions on a Russia/Ukraine conflict could limit supplies.

What does the U.S. potentially shifting to a net exporter mean for the market?

One viewer suggested this scenario means our forecasts would end up too high. We think indeed assuming the U.S. mills don’t “dump” steel, exporting should pressure prices lower. This scenario means the mills can achieve higher utilization than otherwise, but at lower prices.

Do you believe the U.S. cost structure will support exports? And what destinations would be likely?

As far as the U.S. switching to net exports, we assume global markets are efficient and there will be a market for U.S. exports at the right price. China went from net importer to net exporter in recent decades – it can happen. The U.S. has captive iron ore, met coal and natgas, plus relatively cheap power and scrap. I think the key is at what price. For now, the U.S. exports mostly across the Americas. But it could export to Europe more if power costs remain high there. Ultimately, the tons have to go somewhere, and it will be fascinating to see how this transpires with traditional export target Mexico becoming self-sufficient.

How does the infrastructure stimulus affect your Sheet Storm view?

Infrastructure should especially benefit rebar and other bars, plate and beams.

Any thoughts on new plate capacity and its impact on price?

Plate demand looks solid, and the new Nucor mill will get absorbed. Prices can stay higher for longer, but can still slip from recent levels

The HR vs. CR spread is astronomical. Why is this happening?

I think it’s temporary. HRC always moves more aggressively earlier, but CRC will follow.

Did mills get too greedy in 2021?

I suppose that is one word for it. But at the same time, that was what people were willing to pay. There was definitely a period when buyers were more concerned with availability than price. They got to enjoy prices rising and subsequently are seeing the reversal now.

What effect will a potential carbon tax have on pricing long term?

Longer term a carbon tax encourages investments to shrink the sector’s carbon footprint. In the medium term we see the domestic market sufficiently supplied, so that global costs and prices are less relevant.

Some companies are limited in steel purchases due to a shortage of labor.  What is your view here?

We have heard labor constraints are limiting transit and construction demand. But if the product/project is crucial, employers are finding a way to staff properly. There may be some additional pent up demand, but we would anticipate more than enough to supply to meet it.

Don’t miss our next Community Chat with Wiley Partner Alan Price. We’ll talk trade issues, including Section 232 developments, and take your questions. You can register here. More details to come soon!

By Michael Cowden,

Michael Cowden

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