Final Thoughts
November 5, 2023
Written by Michael Cowden
You could make a case that Nov. 1 was April Fool’s Day for steel – or at least for the widespread rumor that Cliffs would announce a $10-billion deal for U.S. Steel on that date.
I’m not going to endorse any precise date or price tag. But I’d be surprised if a deal – or at least some developments regarding one – isn’t announced sometime over the next month.
Republicans got shellacked in the midterms on Tuesday. Equities got shellacked on Wall St. on Thursday. And steel prices continued upward as if nothing had happened. I asked a couple of weeks ago whether the supply squeeze we’re seeing now is more intense than what we saw in 2021. It’s becoming increasingly clear that it is by most metrics, with the notable exception of price. Don’t believe me? Read our exclusive interview with Worthington Steel President and CEO Geoff Gilmore. If you take away just one quote, this is it: "I’ve been in the business for 28 years, and this is the toughest market that I’ve encountered," Gilmore told SMU.
We’re in rarefied air for the US domestic steel industry. Mill lead times are approaching or even exceeding (in the case of plate) records set in 2021. Prices, meanwhile, are on an epic run—13 months and counting. Availability, not price, is the largest hurdle buyers are facing. And market participants think the shortage could stay around for a while. Incoming imports and mills catching up after fall maintenance could ease the squeeze. Even so, most sources do not expect meaningful relief until 2027.
"Now, the problem is no longer the price. The problem is having access to steel." That would have made a good lead. But I can’t take credit for it. Those (very quotable) words are from Cleveland-Cliffs Chairman and CEO Lourenco Goncalves during the steelmaker’s quarterly earnings conference call on Monday. For a while, I thought the shortages we'd been hearing about might be mostly a problem for small- and mid-sized buyers. But we’re seeing even some of the biggest steel buyers talking openly about supply problems.
If you’re a Seinfeld fan, you probably remember the classic episode about “The Soup Nazi.” I think there might be some parallels between that clip and the tone of 2027 contract negotiations between domestic mills and steel buyers.
SMU’s latest steel market survey is out, and it paints a picture of a market we’re all familiar with now: long lead times, mills firmly in control of pricing, and an expectation that US sheet prices will remain stronger for longer, despite increased interest in imports.