Final Thoughts

Final Thoughts

Written by Michael Cowden


I learned a lot at Steel Summit this year. More than I can do justice to in one column.

Below are four things that have stayed with me after the conference closed on Wednesday afternoon.

Another, as I highlighted earlier this week, was electricity – who gets it, and which energy sources we use.

1. US Mill Valuations Higher on Regionalism?

There were two elephants in the room this year: The potential sale of U.S. Steel and the threat of a United Auto Workers (UAW) union strike.

Many of the steel mill executives on stage couldn’t address what U.S. Steel is calling its “strategic alternative process” given the sensitivities involved.

Some of the scuttlebutt along the sidelines centered on what you might expect: Who might buy U.S. Steel? Would it be a domestic buyer or a foreign one? Would the company be sold in full or split apart? Could there be antitrust concerns – whether that be in iron ore, tin mill products, or exposed automotive grades? Could there be pushback from big customers in automotive or appliance?

(I should also note here that U.S. Steel said in its initial public statements that no sale was guaranteed.)

What stuck with me was something Geoff Gilmore, future CEO of Worthington Steel, said on the third day of Steel Summit. Namely, domestic steel assets might be worth a lot more than we thought.

Think the price floated for U.S. Steel: $7.3 billion in the case of an offer from Cleveland-Cliffs that was rejected. And then what Cliffs paid for AK Steel ($3 billion) and ArcelorMittal USA ($3.3 billion) in 2020 – both sizeable steelmakers.

Does that high valuation reflect some of the big trends discussed at the event? Regionalism, “near-shoring,” and US trade policies supportive of domestic mills. I think that’s possible.

2. UAW Strike: Yes, But It Might Be Short

We polled the audience on the first day of Steel Summit about whether they thought there would be a UAW strike. It was a simple yes/no question.

No fewer than 67% thought there would be a strike. That’s less than the 90-95% estimate from Wolfe Research but more than the 50/50 I thought it might be.

Within that 67%, however, opinions were mixed as to whether a strike would be short or extended. As best as I could tell, more people than not thought it would be a short strike.

Perhaps that’s people hoping reality will match their business interests. Perhaps it reflects the sound logic that a long strike would hurt both sides.

Here’s what stuck with me: Some companies have been buying only as needed. But should a strike be brief, it could result in prices rebounding more quickly than expected. In other words, yet more volatility.

3. Decarb Discord

United States Trade Representative Katherine Tai met on Thursday with her European counterpart, European Commission executive vice president Vladis Dombrovskis, on the sidelines of a G20 meeting.

Tai’s office said she and Dombrovskis discussed the “global arrangement” on steel and aluminum that the two sides have been working on since the US agreed to temporarily scale back Section 232 tariffs on the EU in October 2021.

As was noted on the second day of the conference, failure to reach a deal by the end of this year could result in Section 232 tariffs, 25% in the case of steel, being reapplied to the EU. And that could result in retaliatory tariffs (again) by the EU on US exports of products like motorcycles, whiskey, and orange juice.

My takeaway from the trade panel was that the two sides might reach some broad, vague agreement – essentially a way to kick the can down the road when it comes to Section 232 and retaliatory tariffs. But fundamental disagreements remain between the US and the EU when it comes to how to address the issue of carbon emissions associated with making steel.

One thing was very clear: US mills won’t accept anything resembling the EU’s Carbon Border Adjustment Mechanism (CBAM).

When it comes to day-to-day business, there was some disagreement between mill and service center executives about whether buyers had been or would be willing to pay a “green premium” for steel made with few carbon emissions.

U.S. Steel chief commercial officer Ken Jaycox compared the situation in steel to the early days of organic foods. The market might not be huge now, but the growth potential is.

Executives on the service center panel, in contrast, said that most buyers were not demanding “green” steel, nor were they willing to pay more for it.

Perhaps I shouldn’t say “disagreement.” Instead, I’ll put it this way. Most buyers aren’t willing to pay a “green premium” – not yet anyway.

4. Consolidated Mills, De-Consolidated Service Centers

We all know that things have become very consolidated at the mill level. What struck me was how de-consolidated the service center industry still is.

Case in point: Reliance Steel & Aluminum president and CEO Karla Lewis said she has been involved with more than 70 acquisitions since she joined the company in 1992.

Despite Reliance’s acquisitiveness, it controls less than 15% of the domestic service center market. And keep in mind that Reliance is the largest service center chain in North America.

That got me to thinking this: There is probably limited room for mill consolidation. That might explain why we’ve seen companies such as Nucor expanding more and more downstream, companies such as Steel Dynamics Inc. (SDI) expanding into aluminum, and, on the pipe and tube side, Zekelman Industries moving into modular buildings.

What about this: Could we see more service centers acquired by mills?

Reliance has a market cap of around $16 billion, more than that of Cliffs and U.S. Steel combined. But I can think of a few other service centers that are big, but not too big to be acquired by a mill.

The consensus seems to be that the European model of mills owning service centers won’t work in North America. That’s probably true. But could we see a trend of mills buying service centers or increased consolidation among service centers? I think it’s one worth thinking about.

Tampa Steel Conference

I want to say thanks again to everyone – more than 1,400 of you! – who attended Steel Summit this week.

The next big gathering of our steel community will be at the Tampa Steel Conference, which we do together with Port Tampa Bay. That one is Jan. 28-30, 2024. Mark your calenar.

Stay tuned for more on the Tampa Steel agenda. In the meantime, you can register here.

Michael Cowden

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