SMU Community Chat: Timna Tanners’ take on 2024

Timna Tanners, managing director of equity research for Wolfe Research, discussed these key themes and more with the SMU community on Feb. 7’s Community Chat.

Stormy weather in sheet and scrap

Tanners has been warning of a ‘sheet storm’ for a couple of years now. She doesn’t think that prediction is wrong as much as it was early, she said on this week’s chat.

New sheet capacity that came online last year – SDI’s Sinton mill, Nucor’s Gallatin mill, and North Star BlueScope’s project – has been slow to ramp up. This kept steel output last year at levels similar to 2022, she said.

Later this year, slated to come online are U.S. Steel’s Big River 2 project and AM/NS Calvert’s new EAF.

Then, in 2025, Algoma Steel will add its two new EAFs to the picture, and in 2026, more capacity will be added by Nucor’s West Virginia mill and Ternium’s Pesquería project in Mexico.

“Someone’s going to offset this new capacity with closures,” Tanners stated. However, it’s tough to see who that will be.

While Nucor has been more disciplined with its output and may be content to run at 50% of capacity, SDI wants to run full out, she said. Additionally, Cleveland-Cliffs has said it will move more volume this year than last. U.S. Steel, which has already shut blast furnace capacity in the past few years, is unlikely to take out anymore capacity in order to get its deal with Nippon Steel through.

“At these prices, who would shut capacity?” she questioned, adding, “If you want capacity to shut, you might have to see prices fall.”

Speaking of prices, Tanners commented that sheet prices are peaking, with discounting happening, depending on who you talk to. This will continue to drive volatility, she noted. From here, prices will roll off, she said, predicting that scrap prices will rise even as HRC prices slip.

Tanners spoke of her new ‘scrap surge’ hypothesis, which she introduced at the Tampa Steel Conference in January.

Plenty of new EAFs will cause demand for scrap to spike in the next few years, she said, begging the question, “Where does all that scrap come from?”

It’s important for mills to have a scrap strategy in place, she said, noting that mini mills’ margins could be squeezed, while BF producers could potentially find themselves in a more cost-effective position.

Politics to watch

Tanners said we’re in for a “pretty wild ride this year” due to the November elections. Expect to see steel companies’ stock prices move with announcements like Trump’s recent comments on tariffs – a 10% tariff on all imports and a 60% tariff on goods from China. Will the IRA be partially repealed? How will closed borders impact labor availability? There’s plenty to keep your eye on.

As for Nippon Steel’s purchase of U.S. Steel, Tanners said the probability of the deal passing went down with Trump’s recent comment that he would oppose the deal if elected. It’s become a “political football” game, she commented, saying a Q2 or Q3 closing of the deal, which U.S. Steel has said could happen, “seems very ambitious.” There’s “very little chance it goes through before the election,” she said.

Additionally, the United Steelworkers’ (USW) opposition to the Nippon buy is another wildcard for that deal. The union’s disdain for U.S. Steel and its preference for Cliffs has been more than Tanners expected.

“Could the union block it? I would say maybe,” she commented.

To hear the full conversation with Tanners, SMU subscribers can access the replay on our website.

And be sure to register for our next Community Chat. Mercury Resources’ CEO Anton Posner will join us once again on Wednesday, Feb. 21, to share the latest on logistics and the global supply chain.