Final Thoughts

Final Thoughts

Written by Michael Cowden

I headed back to the Atlanta airport after Steel Summit in 2022 hoping to catch up with a few colleagues and contacts only to learn that Cleveland-Cliffs had just announced a price hike.

So, I set everything aside, opened up my laptop, and filed a short article about the $75-per-ton ($3.75-per-cwt) price increase from a counter in a Hartsfield-Jackson food court.

No Post-Summit Price Hikes

At Steel Summit this year, there was no such drama after the event. I had a chance to catch up with some of you at the airport or on the flight back to Pittsburgh.

Outside of all the work that goes into a conference the size of Summit, it was a remarkably drama-free week – especially when compared to the frenzy a week before the conference.

Recall that started on Sunday, Aug. 13, when U.S. Steel announced that it was reviewing unsolicited offers for the company. Cleveland-Cliffs very publicly entered the fray. And the rumor mill cranked up on speculation as to whether there would or wouldn’t be a deal as well as what any transaction might look like.

UAW Strike Still Looming

One reason why there was no post-Summit increase this year should be obvious. It’s the shadow that’s been hanging over the industry all summer. Namely, the expiration of the current UAW labor contract with Ford, General Motors, and Stellantis on Thursday, Sept. 14, at 11:59 pm ET.

As we’ve noted before, a significant number of buyers have moved to the sidelines, or are buying only as needed, because of the uncertainty around whether there will be a strike, and, if there should be one, how long it might last. We’ve seen that reflected in our survey data as well. (See slide 22 in the Aug. 18 survey.)

Also, a snap poll at the outset of Steel Summit revealed that 67% of people in the room on the first day of the event thought a strike would happen. To be clear, many think that a strike will be short.

That might explain why our current sentiment index fell even as future sentiment rose – something we don’t typically see. Maybe respondents to our survey think that prices will fall ahead of and during any UAW strike and then snap back upward afterward.

Lessons From 2019

We have a rough precedent for that in 2019, the last time the UAW negotiated a new labor contract.

The union went on strike against General Motors on Sept. 15, 2019. A tentative agreement between the Detroit-based automaker and union negotiators was reached on Oct. 16. Union members ratified the new deal on Oct. 26, marking the official end to the strike.

What happened to steel prices during that time?

SMU’s average hot-rolled coil price stood at $585 per ton on Aug. 27, 2019, according to our interactive pricing tool. It fell ~20% to $470 per ton in October, before the new labor contract was ratified.

After GM and the UAW deal ratified a new deal, price rose steadily through the rest of the year – reaching $610 per ton in early 2020, a ~30% increase.

History rarely repeats. But it sometimes rhymes. So, let’s say we saw exactly the same thing happen this time around.

SMU’s average HRC price stands at $750 per ton now, a 20% decrease would take us to $600 per ton.

That number is below anything we’ve seen to date. That said, we’ve heard that bigger deals (think 5,000-10,000 tons or more) are in the mid/high $600s per ton from certain mills more exposed to union-represented automakers.

Let’s say, for the sake of argument, we saw prices fall to $600 per ton. A 30% post-strike rebound would put us at $780 per ton. In other words, it might be a lot of volatility. But this industry has more than a little experience with that kind of chaos, especially after the events of the last three years, and could probably navigate it once again.

Predictions for 2023?

Sorry, I’m not going to go there. The future is unwritten. And I’m not going to trot out the Magic 8 Ball again.

Could we see some heated rhetoric from the UAW ahead of and around Labor Day? You can count on it.

The UAW is already rallying the rank-and-file with Eminem’s “Not Afraid” at rallies, according to the Detroit Free-Press. I wouldn’t expect them to back down unless there are significant improvements to their contract, even if it’s not everything they asked for.

In the end, let’s hope that both sides can come to an agreement and avoid a lengthy strike that probably wouldn’t benefit anyone.

Michael Cowden

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