Final Thoughts

UAW Poised To Ratify Ford, Stellantis Contracts. GM, Maybe.

The UAW strike is over. And while tentative agreements have been rejected at certain assembly plants, the new agreement is likely to be ratified, automotive sources tell us.

Look at this vote tracker from the UAW for the Ford contract. Yes, Kentucky Truck rejected the contract. And, yes, Kentucky Truck is a big, big assembly plant. But remember, the UAW doesn’t have an electoral college. It’s a pure democracy.

Votes at Kentucky Truck, which has a history of rejecting contracts, don’t count any more or less than votes elsewhere. When this article was filed, nearly 25,500 votes had been cast with nearly 66% in favor of ratifying the new deal.

It’s even more lopsided at Stellantis, where nearly 81% have cast votes in favor of the new deal.

The question mark is GM, where, when this article was filed, only 52% had voted to approve the new deal.

Mills in Driver’s Seat

But assuming those deals are ratified, and with lead times long, domestic mills appear to be in the driver’s seat for at least the next 1-2 months. Most producers are into January for both hot-rolled and tandem products. Some aren’t quoting spot tons yet. And the ones that are quoting are seeking a premium for them.

Why? Because they can. Also, there is little incentive with contract negotiations underway to lower spot prices – especially when contracts are based on a discount to spot prices.

The question is how many tons are being placed now and which way prices trend in January and February.

As far as spot orders go, one mill might tell me that January 2024 is looking better than usual. Another might say that, yes, bookings are steady and prices are up. But on more limited spot volumes. “It’s almost like everyone is trying to buy time, to figure out what the next move is,” one source said.

Question of volume aside, CME HRC futures point to price breaking out above $1,000 per ton next month, staying elevated through February, and then moving lower from March onward. Futures of course don’t predict the future. But they provide an informed opinion, and that trend makes some sense.

What Will Q1 Look Like?

There is a flip side to lower service center inventories. What data providers to our service center inventory (SCI) report already know is that material on order is the highest its been in some time following heavy purchasing when prices were low in late Q3/early Q4. Those tons will start arriving and being placed into inventory. (Btw, if you’d like to become a data provider for SCI, please contact us at info@steelmarketupdate.com.)

Meanwhile, imports remain available at attractive prices for March/April delivery to the US. I’ve heard that Korean HRC, for example, is available into the Gulf Coast for $800-820 per ton in that time frame. Brazilian material might be as low as $780 per ton. And Vietnamese material from a mill with limited capabilities might be even lower than that.

Some of you tell me you haven’t seen offers outside of traditional import sources. But others say that material across a wide spectrum – the EU, the Middle East, Turkey, and Egypt – makes sense to export the US at ~$800 per ton, especially if US prices climb to $1,000 per ton. (And that could be true even once Section 232 is factored in.)

With a wide gap between foreign and domestic prices, could larger quantities of imports arrive in late Q1? In theory, yes. In practice, even with US prices rising sharply, imports have been somewhat muted.

We haven’t seen flat-rolled steel imports break out above 1 million metric tons since June 2022, according to US government figures. Why is that? Are some of the folks who used to buy big on imports now more concerned about inventory turns?

Also, is it possible that US prices and global prices could meet somewhere in the middle. Iron ore prices are rising, Turkish scrap price are up –  does that mean global prices have bottomed and begun moving up?

Those are my thoughts for now. Let me know yours!

SMU Community Chat on Weds at 12 pm ET

Don’t miss our Community Chat with Center for Automotive Research president and CEO Alan Amici on Wednesday at 12 pm ET. (Note that’s an hour later than our usual start time.)

We’ll discuss the transition to EVs, potentially the biggest change in the history of the automobile industry. We’ll talk about the UAW strike and its implications for automotive supply chains. And we’ll take your questions too.

The live webinar is free to attend. A recording will be available to SMU subscribers. You can register here.