Final Thoughts

I was tempted to call a deal last week when I saw a noticeable softening in USW rhetoric toward US Steel and its senior leadership. Hindsight is 20-20.

All that’s left is for union members to ratify the contract. And it’s hard to see them not doing so given what appear to be generous terms.

If the contract is ratified, it will officially bring to an end months of speculation, going back to at least June, about whether we’d see strikes or lockouts at union-represented mills in the US and Canada.

I wrote back in September that union negotiations were actually proceeding normally. Both sides typically say terrible things about each other, right up to the point when they make a deal. It’s what we saw in 2018 during the last round of talks, it’s what we saw this year – and it will probably be what we see again in 2026, when the USW’s new tentative contract with US Steel expires.

I noted then that the pandemic and the war in Ukraine had created a kind of doom loop. We’d gotten used to expecting the unexpected – and expecting the worst. That just wasn’t a very good frame of reference for understanding union negotiations. I at least called that part right.

So, back to prices. I know some of you were pinning hopes of a near-term recovery on the USW and US Steel deadlocking. That’s almost certainly not going to happen now, and I wouldn’t be surprised to see prices continue to decline until mills get into January production.

Why? For starters, many steel buyers have agreed to – or expect to agree to – much more favorable contract terms in 2023. So there are few incentives to buy this year if you can hold off until next year – especially if you have ample inventory to tide you over.

I know some of you reason that there will be a rebound as lead times get into 2023. The hope is that we will see lead times extend, that mills will announce price hikes to capitalize on and encourage the trend – and that service centers, who’ve grappled with months of falling inventory values, would support the move too.

The question then becomes will it be a dead-cat bounce like we saw after Labor Day following a round of mill price hikes in August? Or will it be a more sustained rally?

I wish I could say I see a sustainable steel-price rally coming. Unfortunately, demand remains lackluster amid increasing supplies. No, the economy hasn’t stopped as it did during early days of the pandemic. But it has slowed. And rising interest rates are not going to do anything to reverse that trend.

We can debate whether there are better ways to fight inflation than jacking up rates at a pace without recent precedent. But it’s just a fact that rates will make selling stuff harder, whether that be new cars, new homes, or your products. Don’t fight the Fed. It’s cliché. But that doesn’t mean it’s wrong.

Also, it’s hard for the US to buck broader global trends. Europe is expected to officially enter a recession over the winter. And China, which had been expected to ease its zero-Covid policies, instead continues to enact mass lockdowns.

I hope I’m wrong on all of this. I hope infrastructure spending proves to be more of a boon for steel demand than anticipated. And I hope that the US economy and the global economy rebound sooner than expected. But, as we saw with labor talks, hope is rarely a good strategy.

By Michael Cowden, Michael@SteelMarketUpdate.com