Final Thoughts

Final thoughts

Written by Michael Cowden


The Tampa Steel Conference is just a few days away. Here are some topics I’m looking forward to learning more about during the proceedings on Monday and Tuesday. (You can find the conference agenda here.)

Forecasts

For starters, we’ll have about a month of 2024 under our belt when we convene on Sunday. How do things compare to what we thought the start of the year would look like? And what’s the outlook for the balance of the year?

Also, and perhaps more importantly, what are the risks to those forecasts? I’m thinking back to Tampa Steel, Feb. 14-16, 2022, when there was some debate on the stage and along the sidelines over whether Russia would really invade Ukraine – a debate settled by events about a week later.

I think all our speakers might have interesting thoughts on those questions. I’m especially looking forward to what analysts Timna Tanners (Wolfe Research), Josh Spoores (CRU), and Alex Hacking (Citi) have to say.

A lot will obviously hinge on the outlook for automotive, construction, and energy – key end markets for steel. So, I’m also keen to hear presentations from Alan Amici (Center for Automotive Research), Ken Simonson (Associated General Contractors of America), and Rick Preckel (Preston Pipe).

Canal troubles

Speaking of risks to forecast, how is the drought on the Panama Canal and fighting on the Red Sea impacting not only steel imports but supply chains more broadly?

The New York Times reported on Wednesday that more vessels were detouring around Africa via the Cape of Good Hope. This is, of course, to avoid being shot at by Houthi forces while transiting the Red Sea to the Suez Canal. Doing so adds approximately two weeks to transit times from Asia and the Middle East to destinations in the West. The Times also pointed out that rates for “war risk insurance” had soared.

Most traffic passing through the Red Sea is for ships carrying containers. Yes, some of them might be carrying light-gauged galvanized. But most steel and steelmaking raw materials are carried on bulk carriers. So, do escalating tensions in the Middle East directly impact the North American steel market? Or should we look instead for more indirect impacts – higher shipping costs and vulnerable supply chains?

But perhaps more pressing for North America is the drought on the Panama Canal? A lot of steel – whether from the west coast of Mexico or Asia – passes through the canal to ports on the Gulf and East Coasts. And there is no way to negotiate a solution to a problem that Foreign Policy says is being made worse by climate change.

In short, will global trade as we know it return to normal after these disruptions? Or could the changes be longer lasting? I think our logistics panel will have some good thoughts there.

Decarbonization, trade policy, and the presidential election

Speaking of climate change, another theme of the conference will be decarbonization. We’ll talk about what that means not just at the policy level but in the real world with Michael Garcia, CEO of Algoma Steel. The Canadian flat-rolled steelmaker is well underway with a project to convert from integrated to EAF production, one justified in no small part by the need for industry to reduce emissions.

I’m also curious to hear what Hybar CEO David Stickler has to say about the EAF rebar mills his company plans to build. The US long products market – which is almost entirely EAF-based – already sports a very low carbon footprint. What can be done to make that footprint even smaller?

Also, on the policy side, it’s impossible to ignore that we’re in an election year. The Inflation Reduction Act (IRA) contained, a little contrary to its name, a lot of money to fund projects aimed at reducing carbon emissions. Think steel-intensive renewable energy projects and huge EV battery plants.

Would we see similar measures continue in a second Biden administration? And would a second Trump administration continue to move the ball forward on climate initiatives, or would it walk away from the field as it did when it walked out of the Paris climate agreement?

Finally, we’ve been asking for years now about when infrastructure might make a noticeable impact on US steel markets. A piece on NPR on Wednesday noted that the Works Progress Administration, a key part of President Franklin Roosevelt’s New Deal in the 1930s, took years to trickle down to markets. But when it did, the impact was big. Is this the year we finally see Biden’s infrastructure spending make its mark?

SMU Community Chat

CRU principal analyst Erik Hedborg presented what I thought was one of our more insightful Community Chats this week.

I’ve gotten a lot of requests for recordings for the presentation and a copy of the slide deck. (More than a few of you were listening to the SDI earnings call). You can find those here.

We’ve also got a great slate of chats coming up. You can register for those here.

On that note, thanks to all of you for your business and your continued support of SMU. I look forward to seeing many of you soon in Tampa!

Michael Cowden

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