Final Thoughts

Final Thoughts

Written by Michael Cowden


We’ve concluded the second day of our Steel Summit conference in Atlanta, and I thought I’d leave you with five things I learned today.

So here they are in no particular order:

Say Hello to ADI, Say Goodbye to Section 232 (as we know it)

It’s not official yet. But Steel Dynamics Inc. (SDI) president and CEO Mark Millett indicated that it might stick. I’m talking about the name for the company’s new aluminum rolling mill.

I asked Millett whether the ‘S’ in SDI would still stand for ‘steel’ once the company is also making aluminum. Yes, and the aluminum division will probably be named – wait for it – ADI, aka Aluminum Dynamics.

Another subject relevant to both steel and aluminum: Section 232. The tariffs and quotas were a “very important vehicle” for encouraging investment in domestic capacity. But Section 232 probably has a shelf life, Millett.

“It is likely to change here over the next year or so. But even if it goes away, it is not going to be that harmful,” he said. Why? First, it has already been scaled back because of exemptions and tariff rate quotas. Also, carbon policy – whether a carbon border tax or a carbon border adjustment mechanism – will effectively serve as a way to prevent imports of “dirty steel,” he predicted.

Don’t Count on a ‘Green’ Premium for Steel

I did a fireside chat Tuesday morning with Tommy Hosea, executive director of global purchasing and supply chain (GPSC) central operations at General Motors.

GM is betting big on electric vehicles and decarbonization. But don’t expect the Detroit-based automaker to pay a big premium for low-carbon steel, not over the long-run anyway.

Many US mills have their own branded low-carbon steels. GM might be willing to pay more for them, but only at first.

In short, low carbon steel probably won’t be like an adder for a specific size or grade. GM is doing its part to decarbonize. Steel is doing its part to decarbonize. But don’t expect automakers to subsidize steel’s efforts.

The Future of Automotive is Steel, or Is It?

Cleveland-Cliffs chairman, president and CEO Lourenco Goncalves is sure the future of the automotive industry – especially when it come to electric vehicles – will be steel.

He pointed to what he said is the significantly higher carbon footprint of aluminum as well as to the expense associated with retooling assembly plants to use aluminum instead of steel.

He also noted that a major vehicle platform – a veiled reference to the F-150 pickup – had switched to aluminum but that other major platforms had not. He suggested that automakers had decided not to follow Ford in a wholesale switch to aluminum.

I recall interviewing a GM official years ago when the F-150 switching to aluminum was headline news. He crowed the Chevrolet Silverado was steel and would remain steel.

Hosea took a more nuanced stance. He said the choice of materials would vary from vehicle to vehicle depending on which made the most sense.

Revenge of the Spreads

I enjoyed moderating the always popular Steel and Commodity Forecasts panel with Josh Spoores of CRU, Timna Tanners of Wolfe Research, and John Anton of S&P Global Market Intelligence.

They generally agree that we’ve reverted to mini-cycles but perhaps at mostly higher levels than we’ve seen in the past. And it’s possible that hot-rolled coil could be at or near at least a near-term as we revert closer to pre-pandemic norms.

But while some relative stability might be in the cards for HRC, don’t expect the same for cold-rolled. Spreads between HRC and CRC have ballooned to unsustainable levels. And CRC probably has catching up to do on the downside.

Will that spread return to the $115-120/ton level we’ve seen on average over the last 15-20 years? Probably not. But will it return to the $200/ton range that has characterized the market since the rollout of Section 232 tariffs in 2018? There is a good chance it might.

There is less agreement on plate. Anton said that the plate’s massive premium to HRC was not sustainable. He thinks that the plate price bubble will pop and that plate could see a decline as brutal as the one HRC has experienced this year.

Tanners and Spoores predicted that the declines in plate might be more gradual. They noted the destruction of Mariupol and its steel mills by Russian forces. Those mills were significant suppliers of plate to the global market. And there is no short-term way to replace that capacity.

Also, plate should benefit from the infrastructure package as more money is released in 2023. That includes not only roads and bridges but also plate-intensive offshore wind farms.

Listen to the Next Generation

It was fantastic to hear from the NexGen Youth Steering Committee. They talked about how important it was to change the perception of the steel industry. It’s not dirty and dangerous jobs involving dated machinery. Instead it’s the marriage of cutting edge hardware, software and human ingenuity.

But keeping an engaged younger workforce in steel requires doing what other manufacturers – think automakers and heavy equipment manufacturers – and some steelmakers are already doing. Namely, more family friendly policies – including not only better healthcare and more generous parental leave policies but also a real recognition of the importance of work-life balance to mental health.

Ben Snyder, founder of J. Benjamin Recruitment Inc., recalled suggesting several years ago to a senior executive that flexible working or working from home would be a good way to attract and retain employees. “I was laughed at,” he recalled.

It’s no laughing matter anymore. Young leaders want to stay engaged in steel for the long-term, but they might not if the industry doesn’t catch up with its peers when it comes to work-life balance.

By Michael Cowden, Michael@SteelMarketUpdate.com

Michael Cowden

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