Final Thoughts

Final Thoughts

Written by Michael Cowden

I wrote on Sunday that it could be a busy week for steel. It has been.

Ford and the United Auto Workers (UAW) union reached a tentative agreement.

U.S. Steel announced a second $100/ton ($5/cwt) sheet price hike in the span of a week.

And a strike on the St. Lawrence Seaway threatens Hamilton, Ontario-based ArcelorMittal Dofasco.

Why do I highlight those three articles?

For starters, there had been speculation that US mills would roll out big price increases as soon as any sign of a deal with the UAW was near. We now have that sign. And $200 per ton in just seven days qualifies as a big hike.

U.S. Steel didn’t specify a minimum base price. But other mills last week specified $800 per ton. Does that mean some are now seeking $900 per ton for hot-rolled coil and $1,100 per ton for cold-rolled and coated products? And, if they are at $900 per ton for HRC, will they stay there – or will they try for a grand?

It might be early to float that idea. I hadn’t seen any following increases from other sheet mills when this article was filed. And some with lead times into 2024 might not want to float higher prices just yet.

I mention HRC at $1,000 per ton because the last time we saw tags jump unexpectedly into the $900s-1,000s per ton was February. That month, which saw near weekly price increases, caught much of the market off guard – especially after prices had fallen into the low $600s (and below that for larger tons) around Thanksgiving.

There are some similarities between now and then. Service center inventories have slipped. Lead times have stretched. And flat-rolled imports are trending lower in October, according to license data.

Also, demand has proven more resilient than expected. But what really sent pricing soaring higher in Q1 of this year was Mexican steelmaker AHSMA unexpectedly stopping production.

Could the Unifor strike hampering shipments along the St. Lawrence prove to be a similar shock? I don’t think so. But it’s worth keeping an eye on.

All those factors support higher prices. What might keep HRC from heading back up to lofty highs?

Demand has been resilient in part because the UAW strike – targeted as it was at high-value truck and SUV plants – might not have reduced steel consumptions as much as expected. That’s good news. But does it also mean that the rebound from the strike will be less pronounced than initially advertised? (That’s assuming the Ford deal is ratified, and that GM and Stellantis agree to similar deals – all big ifs.)

Finally, as we’ve noted before, a lot of steel was ordered in September when prices were low. Downside risk was a lot less than upside risk – and so big buyers bought a lot. Lead times in late September averaged 4-5 weeks, which means much of that material could be arriving soon.

Will big buyers load up again with lead times now out to December or even January for some producers and products? And if US prices hit $1,000 per ton again, could we see imports come in and prices cycle back down again? That’s what we saw in Q2.

I mention that possibility because things aren’t looking so hot abroad. US mills are aiming for triple-digit price increases. Producers in Europe are warnings of weaker activity and job cuts.

Case in point: Swedish steelmaker SSAB posted solid results in the Americas but warned of weak demand in Europe – where it said it was aiming to cut costs in part by laying off workers and being pickier about new hires.

The US has for at least the last year bucked fears of recession and fallout from crises abroad. There might be a good case for it continuing to do so. There is probably also a good case for imports becoming more attractive if US prices shoot higher than those in the rest of the world.

That said, any material ordered now might not arrive until late in Q1 of next year. It could be a very merry year-end for US mills in the interim.

Michael Cowden

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