The company did not say what the amount of the increase was. But $750 per ton would represent a $105-per-ton increase over SMU’s HRC prices, which settled on Tuesday evening at $645 per ton.

Cliffs did not specify a target price for cold-rolled or coated products but said the increase applied equally to all sheet products.

SMU’s HRC price stands at $645 per ton was down $20 per ton vs. the prior week and down $515 per ton from a 2023 peak recorded in mid-April.

That marks the lowest point for hot band prices since mid-December 2022, per our pricing tool.

The increase move caught some market participants by surprise, especially coming amid the ongoing UAW strike.

But others have noted that, the strike aside, demand remains firm. Some have also pointed to lower inventories and less import buying as factors that could support a price floor.

It’s above my pay grade to handicap the strike, so I’ll lay out the two cases I’ve heard for prices this week – a bull case that prices are near a bottom, and a bear case that they still have room to fall.

The Bull Case

I spoke to one mill executive who said his company had recently recorded their best booking week of the year.

Were the prices great? No. HRC was in the low $500s per ton for companies capable of buying 100,000 tons or more. The figure was the mid/high $500s per ton for those buying 10,000-20,000 tons or more. So why be proud of that? This week, he said, his company has been able to hold the line around $640-660 per ton for standard spot buys.

I’ve heard similar things from buyers. Namely, that (a) we might already be past the price bottom for “big tons” and that (b) the bottom for standard spot tons will follow on a bit of a lag.

How is it that we’re talking about a potential sheet price bottom during an expanding UAW strike? The charts below might be instructive.

Below we’ve plotted out HRC prices and lead times.

As you can see, prices dropping below lead times doesn’t happen often. When it does happen, it’s often an indicator that prices are about to bottom out and rebound.

Some of you would disagree with this. You’ll say that HRC lead times are shorter than advertised. But keep in mind that these are averages.

Also, we’re not just seeing that trend in HRC. Below are base prices vs. lead times for galvanized coil:

I think there is less room for complaint with the galvanized lead times. We know from a recent SDI lead time sheet that the steelmaker is out roughly 7-8 weeks for galv. That’s extended for SDI, especially considering that the company typically keeps lead times short by design.

We’ve also written in recent editions that US prices are near parity with prices abroad and below them once you factor in freight and other costs.

With domestic price low and lead times relatively standard, few respondents to our survey say they are looking to buy foreign steel:

And what do inventories look like?

Here’s where they were in August:

August 2023, the orange bar, is down modestly from July and roughly on par with where we were in August 2022, the light blue bar.

We won’t have September numbers until the middle of next month. That said, and as we’ve noted before, many steel buyers have been reducing inventories over the last month. I wouldn’t be surprised if September inventories were also lower.

In other words, this looks a lot like what we saw in the fourth quarter of last year. That’s when low domestic prices and limited offshore buys helped set the stage for a sharp rebound in Q1.

And make no mistake, there is a school of thought, one that has gained significant traction over the last two weeks, that prices will pop in Q4 as soon as there is any inkling that the UAW strike might end.

The Bear Case

On the HARDI call today, it was pointed out that few people had expected galvanized prices to fall below $1,000 per ton. And yet here we are in the $800s per ton on average – meaning that we’re collectively not very good at predicting the future.

And while it was not a majority opinion, at least a couple of people on the call expressed concern that the UAW strike could become a protracted one.

Keep in mind that the UAW has struck just three assembly plants to date. The strike at parts distribution centers, announced last Friday, might have more impact on dealers than on automotive production. In other words, steel production is probably less impacted now than it was at this point in the 2019 strike against all GM facilities.

But it’s no secret that the UAW and the “Detroit Three” automakers are far apart on a range of issues. What happens, then, if the strike expands this Friday to more assembly plants? I’m guessing we might see more blast furnace idlings, especially at mills heavily exposed to automotive. We might also see the extension of current or upcoming fall maintenance outages.

I can see why some are predicting a lengthy strike. President Joe Biden on Tuesday joined a picket line in Belleville, Mich. – a first for a sitting president. He told striking workers: “You deserve what you’ve earned. And you deserve a whole hell of a lot more than you’re getting paid now,” according to The Washington Post.

That’s not exactly the kind of language that might bridge the gap between the “Detroit Three” automakers and the UAW. (Well, President Biden also said earlier this month that there would be no UAW strike. So let’s not overestimate his influence on these negotiations.)

In any case, what happens to the consensus that has formed over the last two weeks – that prices are at or near a bottom – if UAW President Shawn Fain announces more “Stand Up” strikes on Friday? Let me know your thoughts!

Tampa Steel Conference

Our Tampa Steel Conference might not be until Jan. 28-30, 2024. But our early-bird discount expires Sept. 30. And hotel rates are only going to go up as we get closer to peak tourism season in the Sunshine State. So register now!

While HRC prices slipped, the $15-per-ton (0.5 per cwt) w/w decline SMU recorded this week was modestly less than the ~$25-per-ton w/w declines we’d averaged previously.

Take a look at SMU’s pricing tool. You’ll see it was a similar story for cold-rolled and galvanized base prices, which were both down $10 per ton w/w. Cold-rolled and galvanized WoW declines had been averaging ~$15-20 per ton previously.

Some market participants will tell you that those changes are significant and potential evidence of a sheet market nearing a bottom.

They might tell you that lower inventories, uncompetitive imports, and mostly steady demand outside of automotive will support a new floor. They might also note that capacity has been tightened by U.S. Steel idling a blast furnace, by fall maintenance outages (some of which have been extended), and by certain EAF mills quietly ratcheting back capacity.

Other sources will tell you that it’s just noise. They might tell you that it’s hard to handicap prices without knowing how long the UAW strike might last and how many assembly plants it might impact. Both of those factors are unknows as of now.

All told, however, sheet sentiment was more positive this week than in prior weeks. That was not the case in plate, where prices slipped $10 per ton and where sentiment soured.

SMU is in the meantime keeping its price momentum indicators pointed lower. While there is talk of a price bottom in sheet, we will not move our sheet price indicator to neutral until we see more evidence of a stable floor.

Hot-Rolled Coil

The SMU price range is $600–690 per net ton ($30.00–34.50 per cwt), with an average of $645 per ton ($32.25 per cwt) FOB mill, east of the Rockies. Both the bottom end of our range decreased $20 per ton vs. one week ago, while the top end of our range was $10 per ton lower WoW. As a result, our overall average is $15 per ton lower compared to the prior week. Our price momentum indicator for hot-rolled coil is still pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Hot-Rolled Lead Times: 3–7 weeks

Cold-Rolled Coil

The SMU price range is $830–900 per net ton ($41.50–45.00 per cwt), with an average of $865 per ton ($43.25 per cwt) FOB mill, east of the Rockies. The lower end of our range was unchanged WoW, while the top end was $20 per ton lower compared to a week ago. Our overall average is down $10 per ton WoW. Our price momentum indicator on cold-rolled coil is still pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Cold-Rolled Lead Times: 5–8 weeks

Galvanized Coil

The SMU price range is $830–900 per net ton ($41.50–45.00 per cwt), with an average of $865 per ton ($43.25 per cwt) FOB mill, east of the Rockies. The lower end and top end of our range were down $10 per ton vs. last week. As a result, our overall average is down $10 per ton vs. the prior week. Our price momentum indicator on galvanized steel is pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Galvanized .060” G90 Benchmark: SMU price range is $927–997 per ton with an average of $962 per ton FOB mill, east of the Rockies.

Galvanized Lead Times: 4-9 weeks

Galvalume Coil

The SMU price range is $850–900 per net ton ($42.50–45.00 per cwt), with an average of $875 per ton ($43.75 per cwt) FOB mill, east of the Rockies. The lower end of our range was down $10 per ton vs. last week, while the top end of the range was $40 per ton lower WoW. Our overall average was down $25 per ton compared to one week ago. Our price momentum indicator on Galvalume steel is still pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Galvalume .0142” AZ50, Grade 80 Benchmark: SMU price range is $1,144–1,194 per ton with an average of $1,169 per ton FOB mill, east of the Rockies.

Galvalume Lead Times: 6–8 weeks

Plate

The SMU price range is $1,390–1,520 per net ton ($69.50–76.00 per cwt), with an average of $1,455 per ton ($72.75 per cwt) FOB mill. Both our lower end and top end of our range were down $10 per ton compared to the week prior. Thus, our overall average is down $10 per ton vs. one week ago. Our price momentum indicator on steel plate shifted to lower from neutral, meaning SMU expects prices will decline more over the next 30 days.

Plate Lead Times: 3–8 weeks

SMU Note: Below is a graphic showing our hot rolled, cold rolled, galvanized, Galvalume, and plate price history. This data is available here on our website with our interactive pricing tool. If you need help navigating the website or need to know your login information, contact us at info@steelmarketupdate.com.

The automaker announced the investment back in Feb. 2023. The plant would be the first automaker-backed lithium iron phosphate (LFP) battery plant in the country, according to the original press release from Ford.

Named the BlueOval Battery Park Michigan, the plant would employ approximately 2,500 people. Ford had planned for LFP battery production to begin in 2026.

The MarketWatch article said that a final decision about the planned investment in BlueOval has not been made yet.

After the announcement, United Auto Workers (UAW) union president Shawn Fain released a statement on X, formerly Twitter, saying, “This is a shameful, barely veiled threat by Ford to cut jobs.”

“Closing 65 plants over the last 20 years wasn’t enough for the Big Three, now they want to threaten us with closing plants that aren’t even open yet,” Fain said on X. “We are simply asking for a just transition to electric vehicles and Ford is instead doubling down on their race to the bottom.”

Recall that the UAW has been on strike against all three Detroit-area automakers since Sept. 15 at targeted plants. An expansion of the strike was announced last Friday against General Motors and Stellantis, but Ford had been spared. Fain said at the time that at Ford “they are serious about reaching a deal.”

“We are all mourning a great loss, but even in our sadness, our union is strong, thanks in large part to Tom’s leadership and vision,” McCall said in a statement. “Now, we’ll move forward the only way we can: together.”

McCall has served as USW international vice president of administration since July 2019, USW said.

“In that role, he bargained contracts with some of the union’s largest employers in steel, aluminum, rubber, and other industries,” according to the statement.

Before his role as vice president, he served for 21 years as the director of USW District 1. In this position he represented 70,000 USW members and retirees throughout Ohio, and helped to broker some of the union’s biggest contracts, the union said.

McCall began his career as a union activist with USW Local 6787 at the Burns Harbor integrated steel facility in northwest Indiana, now part of Cleveland-Cliffs. He worked as a millwright, USW said, and served the local union in various positions, including grievance chairman and vice president.

In 1986, he joined the USW International staff.

“We’re organizing new members in new industries in both the United States and Canada, even as we bargain cutting-edge agreements for members in our traditional sectors,” McCall said.

“I am humbled to lead our union as we continue to fight for a better future for all working people,” he added.

Compared to year-ago levels, August’s imports were down 10%.

Looking at imports on a three-month moving average basis to smooth out the month-to-month fluctuations, we can see that imports have been somewhat steady since March but have been trending down over the past couple of months and are still well below the elevated levels seen mid-2021 through mid-2022.

While imports of semifinished steel dropped by more than 20% from July to 407,173 tons in August, they were just 1% below year-ago levels.

Finished steel imports, meanwhile, were up 1% MoM but 11% lower YoY at 1,864,463 tons in August.

Flat-rolled steel imports moved up MoM after declining consecutively in June and July. August flat-rolled imports came in at 856,045 tons. This was a 5% MoM increase yet a 20% YoY fall.

While overall flat-rolled imports were up MoM, plate in coils, cold-rolled sheet, and tin plate registered decreases of 14%, 12%, and 6%, respectively. Other metallic-coated imports shot up 50%, followed by cut plate.

Imports of hot-rolled rebounded MoM, surging by 21% from July to 178,437 tons in August.

Pipe and tube imports surged by 50% in August to 87,195 tons after falling to a 17-month low from the month prior.

OCTG imports were down markedly again in August, a trend seen repeatedly since May. It is a reversal from seeing elevated totals for the prior six months.

Imports of wire rod and structural pipe and tube were at 124,726 tons and 43,289 tons, respectively in August. Structural pipe and tube recovered strongly after posting a near two-year low the month prior.

Mechanical tubing imports, meanwhile, slipped in August to 56,746 tons after reaching an almost two-year high in July.

The table below provides further detail into imports by product, highlighting high-volume steel products.

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

We’ll talk about the outlook for construction, a key end market for steel. We’ll discuss how changing material costs, including for steel, might affect that outlook.

We’ll in addition dive into the impact of higher interest rates, the Inflation Reduction Act, and infrastructure spending. To what extent might higher rates slow construction activity? And to what extent might the IRA and infrastructure help to offset that?

Another important topic: labor. We’ve seen labor shortages and widespread strikes – not only at the UAW but across other industries as well. Does that mean skilled workers will remain hard to find for longer than anticipated?

And we’ll of course take your questions too.

Simonson is in a good position to answer them because AGC is the leading association for the construction industry, with more than 27,000 member firms across a range of markets. Also, Simonson has been chief economist at AGC since 2001 – so he’s seen more than a few construction market cycles.

As always, we’ll keep it to about 45 minutes. You can drop in, learn something – and then get on with your day.

PS – If you’d like to see past Community Chat webinars, you can find those here.

“It’s unprecedented to have two events that big going on at the same time,” said Steel Market Update’s (SMU) managing editor, Michael Cowden.

However, people haven’t been as bearish as expected, added Cowden. “People are more constructive on where they see things in a month or two,” he said.

In SMU’s last survey, participants reported an 80%-90% mill negotiation rate for most of the products SMU surveys. That means a great majority of the mills are willing to talk price these days. Additionally, service center inventories slid down in August, as many have been reducing inventory.

One HARDI member from the East Coast reported that demand has been OK, with some areas being stronger than others.

Another member from the Midwest shared that though September was softer than August, there was no reason to be concerned. “October inquiries have been strong, so we’re expecting things to pick up,” the member said.

A member from the West Coast said his company is doing well year over year, and better than anticipated. However, residential construction is still soft.

According to a participating service center, shipments and inventory have been solid, and inquiry volumes have grown.

The biggest question on everyone’s minds was: When will the UAW strike end?

On this month’s call, 50% of participants present expect the galvanized base price to be flat (+/-$2 per hundredweight) over the next month. Another 28% expect the price to be down more than $2/cwt, while 1% predict the price to increase more than $2/cwt. Looking forward six months, 44% believe prices will be up more than $6/cwt, while 33% think prices will be up more than $2/cwt. Of members present, 11% think prices will be flat (+/-$2 per cwt).

Steel Market Update participates in a monthly steel conference call hosted by HARDI. The call is dedicated to a better understanding of the galvanized steel market. The participants are HARDI member companies, wholesalers who supply products to the construction markets. Also on the call are service centers and manufacturing companies that either buy or sell galvanized sheet and coil products used in the HVAC industry and are suppliers to the HARDI member companies

This would be ahead of the originally projected date of early 2024, Worthington said.

“Worthington Steel,” the new name for its service center business, honors Worthington’s history. It also marks “a return to the original name of the steel processing business John H. McConnell founded in 1955,” the company said.

As previously reported, Geoff Gilmore, chief operating officer and EVP of Worthington Industries, will be president and CEO of Worthington Steel.

“Our entire team is energized to boldly lead the metals industry into a sustainable future as the most trusted, most innovative, and most value-added metals processing partner in North America and beyond,” Gilmore said in a statement.

Worthington’s downstream businesses be known as “Worthington Enterprises.” That company will include Worthington’s building products, consumer products, and sustainable energy solutions businesses, as has been previously reported.

“We felt that keeping Worthington in our name was important because we will continue to operate by our philosophy and golden rule principles,” Andy Rose, president and CEO of Worthington Industries, said. He will continue in the same role at Worthington Enterprises.

“The word ‘Enterprises’ is most often associated with entrepreneurial ventures – and that is who we are at Worthington Enterprises,” Rose added.

Worthington Industries said it will host an investor and analyst day on Oct. 11 in New York. Future senior leaders representing Worthington Enterprises and Worthington Steel will provide “an in-depth review of their strategies to drive long-term growth and shareholder value.”

Both Worthington Enterprises and Worthington Steel will be headquartered in Columbus.

“From his earliest time making steel to his steady hand leading us through the darkest days of the pandemic, Tom followed two simple guiding principles: the dignity of work and the power of working people,” David McCall, USW International vice president of administration, said in a statement on Monday.

Proud Reputation

Conway became one of the union’s most accomplished contract negotiators in steel, aluminum, oil, and other major industries, the USW said.

He spearheaded initiatives to organize more workers into the labor movement. Those efforts extended union representation to workers in a range of fields, from manufacturing to higher education.

“Under Conway’s leadership, USW members gained some of the movement’s most significant organizing victories,” the USW said.

In steel, for example, Conway helped to broker what was deemed an “historic” labor pact with Cleveland-Cliffs in October 2022 and later with U.S. Steel in November of that year.

Conway also advocated for “fair trade.” He pressed the US government to enforce trade laws and to prevent importation of “illegally subsidized and dumped products that damage domestic industries and destroy good-paying jobs,” the USW said.

“I came to regard Tom Conway as a personal friend and trusted business partner, with whom I shared a steadfast belief in the bright future of the American industry,” Lourenco Goncalves, Cleveland-Cliffs’ chairman, president, and CEO said in a statement on Monday.

“While Cleveland-Cliffs’ close partnership with the USW will continue, I will miss Tom Conway greatly,” he said.

David B. Burritt, president and CEO of U.S. Steel, also expressed his condolences.

“On behalf of everyone at U.S. Steel, I extend condolences to the USW, our member employees, and Tom Conway’s family and friends,” he told SMU in an email.

“I respected Tom’s passion for his mission, and our thoughts and prayers are with the Conway family during this difficult time,” Burritt added.

On the government side, US Trade Representative Katherine Tai offered her sympathy.

“Tom leaves a legacy of always standing up for working people, fair competition, and economic opportunity for all,” she said in a statement. “On behalf of the Office of the United States Trade Representative, I offer our deepest condolences to Tom’s loved ones and our friends at USW.”

Likewise, members of the Congressional Steel Caucus expressed their condolences.

 “The members of the Congressional Steel Caucus deeply mourn the sudden loss of USW International president Tom Conway, a devoted leader whose commitment to his members and their families was unwavering,” Rep. Rick Crawford (R-Ark.) and Rep. Frank Mrvan (D-Ind.) said in a statement. “Mr. Conway was an avid proponent of equitable trade policies and staunchly advocated for the development and well-being of steel-supported communities.”

History

Conway became an activist at USW Local 6787 in 1978 at the Burns Harbor Works in northwest Indiana. The mill, which now belongs to Cliffs, was then part of the former Bethlehem Steel.

He worked as a millwright in the coke plant. While doing that, he also served as a griever for plant-wide maintenance and was a member of the safety and contracting-out committees, the USW said.

Conway in 1987 joined the union’s International staff. He was elected as USW International VP in 2005, the union said.

“His time as USW president was too short, but it’s clear he will leave an indelible impact on our union and beyond,” McCall said.

The mill capability utilization rate for the week was 76.3% vs. 76.2% the week prior. The mill capability utilization rate for the same period last year was 76.4%.

Adjusted year-to-date production through Sept. 23 was 65,033,000 net tons, with a capability utilization rate of 76.0%. That is a 1.5% decrease from the 65,999,000 net tons during the same time last year, when the capability utilization rate was 79.4%.

• Northeast – 126,000 (down 9,000 tons)
• Great Lakes – 575,000 (up 4,000 tons)
• Midwest – 220,000 (down 3,000 tons)
• South – 744,000 (up 7,000 tons)
• West – 70,000 (up 3,000 tons)

The strongest production month so far this year was March when global steel production stood at 165.1 million metric tons, 7.6% higher than August.

China produced 86.4 million metric tons last month, down 4.8% from July but up 3.2% from a year earlier, and making up about 56.6% of global production.

Steel production in the rest of the world (RoW) fell 2.2% month over month (MoM) to 66.2 million metric tons in August, according to worldsteel data.

Regionally, output was higher YoY in Africa, which stood at 1.5 million metric tons (+16.1% ); Russia, Ukraine, and other CIS at 7.5 million metric tons (+10.7% ); and Asia and Oceania at 115.7 million metric tons (+3.5% ).

Regions seeing lower on-year production were the Middle East at 2.8 million metric tons (-16% ); South America at 3.4 million metric tons (-8.1% ); the EU at 9.1 million metric tons (-4.4% ); other Europe at 3.4 million metric tons (-3.2% ); and North America at 9.2 million metric tons (-2.6% ).

Despite that, union members voted only 54% in favor of ratifying the deal.

Union, Ford of Canada Speak Out

“Your bargaining team pushed Ford of Canada on every front to deliver a contract that fundamentally transforms pension plans, provides protections during the EV transition, and includes the highest wage increases in the history of Canadian auto bargaining,” the union said in a statement on Sunday.

Bev Goodman, president and CEO, Ford of Canada, also praised the agreement.

“This contract invests in our talented and dedicated employees,” she said in a statement. She lauded the workers who remain “consistently focused” on the “critical work” of vehicle assembly, building engines and components, and improving customer satisfaction.

Contract Details Outlined

New workers in particular are slated to see big gains under terms of the new deal.

Unifor said that a Ford worker with one year of experience should see hourly pay go from CDN$25.75 (USD$19.12)  to C$46.13(USD$34.25) by the end of the agreement, or an ~80% increase.

Other highlights include a base hourly wage increase of ~20% for production workers and 25% for skilled trades over the life of the contract, the resumption of cost of living allowances (COLAs), and the transitioning of workers to a defined-benefit pension.

The agreement expires on Sept. 20, 2026. With a new contract pattern set, the union said it would select the next target among the “Detroit Three” automakers for negotiations – either General Motors or Stellantis.

UAW Strike Continues

The news of the contract in Canada comes on the heels of an expanding United Auto Workers (UAW) union strike in the US.

UAW president Shawn Fain on Friday called on all workers in parts distribution at General Motors and Stellantis to go on strike.

The move impacts 38 locations across 20 states. But most are clustered in the Midwest.

The UAW is not expanding the strike against Ford. That’s because Fain said “real progress” had been made with the automaker.

U.S. Steel Sale – Back in the Headlines

We learned last week that Stelco had joined a growing list of steelmakers kicking the tires at U.S. Steel – a list that already included Cleveland-Cliffs and ArcelorMittal.

The news surprised me in that Stelco, a Canadian steelmaker with a sole active blast furnace, is much smaller than Pittsburgh-based U.S. Steel. That said, it’s not like we haven’t seen guppies swallowing whales before.

Some of you who have been around for a while might recall SSAB’s $7.7-billion acquisition of Ipsco in 2007. It then in 2008 sold off Ipsco’s considerable tubular operations in North America to Russian steelmakers TMK and Evraz.

TMK, roughly speaking, got Ipsco’s US tubular assets and Evraz its tube mills in Canada as well as a plate mill in Oregon. SSAB ultimately kept just two plate mills, one each in Iowa and Alabama.

Why do I bring up a series of deals that happened more than 15 years ago now? Because there have been some media reports about various suitors buying “all” of U.S. Steel.

I’m not sure that I see that as very likely. Let’s remember that “all” of U.S. Steel means not just its integrated mills in the Midwest and Big River Steel, an EAF sheet mill in Arkansas, but also energy tubular facilities, UPI in California, mining operations in Minnesota, and a steel mill in Slovakia.

But I can see a few scenarios in which U.S. Steel might be divided up among several of the companies already reported to be involved in the sales process (and perhaps some companies who haven’t been named yet as well).

Is ArcelorMittal, for example, really interested in buying integrated mills in the Midwest when it sold similar facilities to Cliffs just a few years ago?

Maybe. But I could also see a footprint of Big River Steel, AM/NS Calvert (soon with a new EAF), and ArcelorMittal’s DRI/HBI plant in Texas making a lot of sense. Let’s also keep in mind that the “NS” in “AM/NS” is for Nippon Steel, with whom ArcelorMittal has partnered with abroad as well – AM/NS India, for example. So perhaps Nippon Steel is in the mix too?

In short, we should be asking not only which individual steelmakers might buy U.S. Steel but also which constellations of companies might work together. And, again, It’s also worth considering which assets might be shifted around after any deal for U.S. Steel.

By the way, the silence around the U.S. Steel sales process in recent weeks doesn’t necessarily mean that nothing was happening. It might instead have been an indication that serious negotiations were underway. Now that we’re hearing more news coming out of those talks, could it mean that we’re closer to seeing some official announcements?

UAW Strikes Spreads, Now What?

The UAW expanded its strike against Stellantis and General Motors with strikes at their parts distribution plants across the country. What might the knock-on effect of the strike at those distribution plants be this week?

I ask that because, even before the strike expanded, parts makers were already getting hit by the work stoppage. LM Manufacturing LLC in Michigan, for example, laid off approximately 650 workers because of the strike, according to an article in Canadian newspaper The Globe and Mail.

LM Manufacturing is a joint venture with Magna International, a Canadian-based company that is also one of the largest suppliers to automotive – so any impacts there are worth monitoring.

It’s also worth keeping an eye on whether a growing web of UAW strikes could impact not only the “Big Three” automakers, whose operations are centered in the Midwest, but also non-union shops in the South.

Case in point: The strike at a ZF Group in Tuscaloosa, Ala. ZF, based in Germany, like Magna, is one of the world’s largest suppliers to automotive. Automotive News reported that production at ZF in Tuscaloosa has continued. That means production at a Mercedes-Benz plant in Tuscaloosa also continues, the article said.

So why do I mention that article if there has been no impact at ZF to date? The Tuscaloosa plant makes Mercedes-Benz SUVs that are sold for a tidy profit within the US. Those same SUVs are also exported from the US for profitable sales abroad.

The UAW strategy appears to be exert maximum pain on automakers’ bottom lines with minimal use of its $825-million strike fund. The union has already targeted profitable pickup and SUV platforms at Ford, General Motors, and Stellantis. Could it do the same – even if indirectly – at non-union automakers?

SMU Community Chat on Oct. 4 at 11 am ET

Given recent events, we’ve been writing a lot about the automotive market. We decided we were overdue for a deep dive into construction.

So mark your calendar for Oct. 4 at 11 a.m. ET. We’ll catch up with Associated General Contractors of America (AGC) chief economist Ken Simonson for a Community Chat.

We’ll talk not only about the outlook for construction but also about why it remains difficult to find and retain skilled workers. You can learn more and register here.

Frequently debates center on the preconceived conclusions of a debater, who cites cherry-picked evidence in support of the view he or she espouses. Both sides do it, and reality’s subtleties rarely intervene.

Let’s look at some evidence and draw conclusions from it in keeping with my complaint.

First, trade is and always has been about mutual benefit. Summers started with this point in his speech, and it is still true. With certain exceptions (more about those anon), increasing trade has the following benefits:

• More competition leads to lower prices for consumers
• More choices
• For manufacturers in the US, trade leads to reduced costs at home and export opportunities abroad

Lighthizer and others argue, however, that increased trade has hollowed out American industry. But has it? We need an acceptable way of measuring that. Here are three: (1) gross domestic product growth, adjusted for inflation; (2) wage growth; and (3) growth in industrial production.

Since 2000, the year the Uruguay Round tariff cuts took effect, real GDP (constant 2012 dollars) of the United States has grown from $13 trillion to $20 trillion, an increase of more than 50%.

Average real wages in the United States for the same period have increased from $334 per week to $365 per week, an increase of about 10%. The road has been bumpy. In late 2020 the average weekly wage was $393, but wages have come off that heady level.

Industrial production has increased from an index of 91 in 2000 (100 is the 2017 figure) to 103. Not as impressive as the other numbers but remember two “episodes” in 2008 and 2020, which tanked the economy during that period, and can hardly be blamed on trade liberalization.

Compared to other economies, the United States remains at the top. No other country, apart from China, has seriously challenged the US as the top economy in the world.

Now, let’s look at the arguments that trade has injured the United States. First, the decline in manufacturing employment. Second, international competition has stolen American jobs. And third, that other countries don’t play by the rules, and steal American knowledge.

There has clearly been a decline in manufacturing employment. According to Federal Reserve statistics, manufacturing employment has declined from about 17 million in 2000 to about 13 million today, a decline of more than 20%. To blame trade for the decline in manufacturing employment requires ignoring a lot of evidence concerning automation, productivity gains, and changing consumer tastes. Trade has also led to increasing employment in sectors other than manufacturing, such as services of all sorts.

If trade expansion were a curse, as Ambassador Lighthizer asserts, then there should be little or no effort to increase it. While the President advocates creating jobs at home by building infrastructure and electric vehicles, look who is going overseas to link with foreign businesses. In just the last month, the Governors of Maryland, Pennsylvania, Nebraska, New Mexico and Missouri announced overseas trips to stimulate investment in these states, which are, of course, part of the US.

And investment is the obverse of the trade deficit. When money flows out of the country to pay for imported goods, it comes right back in the form of investment. Investment is roaring into the United States. Governors are aware and are trying to steer it to their states.

Politically, the federal government is picking favored industries, such as steel, aluminum, electric vehicles, clean energy, and semiconductors. Another industry I would focus on is modernizing the electric grid. But that requires goods that are not made in the US in sufficient quantity, which complicates things.

To upgrade the grid, many thousands of transformers (both power transformers and distribution transformers) must be purchased. American producers can’t make enough of them. The grain-oriented electrical steel that goes into them is not produced in sufficient quantities to manufacture them. So, the transformers must be made overseas.

Solving many of our most pressing problems, therefore, requires expanding trade. If we embrace the real challenges, it becomes apparent that trade is not a bug, but a feature.

As the world changes, it does some things better than it used to. With competition comes advances in technology and innovation. Those advances themselves create challenges, such as the decline in manufacturing employment. So other sectors will need to take up the slack. A dynamic economy with expanding opportunities will do that better than government edicts.

Government is important in redirecting energy in the private sector—but government has its limits. In a dangerous world, innovation is our most powerful weapon.

One metric that does not seem to matter much is the magnitude of the trade deficit. Here, Ambassador Lighthizer is just wrong. Trade deficits are the difference between national savings and net national investment. If we want to reduce them, the American people will need either to save more or invest less. As the Trump tariffs demonstrated, tariffs will not shrink the trade deficit. And, in that period, as former Senator Pat Toomey wrote this week, the US economy vaulted ahead of the total GDP of the European Union, which has 100 million more people than we do. In 2008, the US economy was 10% smaller than the EU’s. Now it is 50% larger.

I hope Larry Summers keeps talking up the benefits of trade in keeping the US the bastion of innovation and productivity that it has been for 200 years.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.

The Labor Shortage Is Real

The US labor force is at a record high of 167.8 million people. The unemployment rate, meanwhile, remained low at 3.8% in August. And only about 1% of workers are currently collecting unemployment, he said.

The total percentage of people working has not recovered to pre-Covid levels. But that figure is deceptive. That’s because the largest group of people not working are those 55+ years old, Schenker said.

“Why does the UAW have leverage?” he asked. “There is no one to hire and there is no one collecting unemployment.”

“Given the labor market data, if I were the auto companies, I would resolve it sooner rather than later,” he added.

Price Impact Limited, as Long as the Strike Isn’t Protracted

Joseph Pickard, ISRI chief economist and director of commodities, provided some context to the current stoppage. He said strikes were nothing new in the auto industry, with many having occurred since the first half of the last century.

What does the strike mean for metallics? Pickard estimated that automotive represented about 26% of US steel demand and 35% of domestic aluminum demand.

“Traditionally, there have been price downturns in ferrous in or around these auto strikes,” Pickard said. But such dips impacts are typically transitory.  

Recall that the most recent UAW strike in 2019 lasted for six weeks, which was par for the course. The average strike lasts five weeks. That’s based on 30 years of data and among strikes with more than 1,000 workers in the past 30 years, according to an NBC analysis of Bureau of Labor Statistics data.

But Pickard also noted that nine of the 20 longest strikes of the past three decades lasted longer than a year.

Another thing that has changed in the last quarter century: market share. In 1999, the Big Three automakers had a combined market share of 68%. It stood at just 40% in 2023, Pickard said, citing figures from the Center for Automotive Research (CAR) in Ann Arbor, Mich.

The UAW began its strike at three plants last week. The union UAW expanded its strike on Friday, calling for work stoppages in parts distribution plants across the country at General Motors and Stellantis.

The US rig count is down 134 rigs compared to a year ago, when there 764 active rigs. Compared to last year, there were 95 fewer oil rigs and 42 fewer gas rigs. A gain of three miscellaneous rigs offset the year-over-year drop only minimally.

There were a total of 215 active rigs in Canada this week, flat compared to last week. Oil rigs fell by four, but gas rigs increased by four to offset the loss.

The Canadian rig count is down 25 rigs compared to this time in 2022. Oil rigs were down 33 year over year. Gas rigs were up by eight.

The international rig count is updated on a monthly basis. It is therefore unchanged from last week’s report.

The Baker Hughes rig count is important to the steel industry because it is is a leading indicator of demand for oil country tubular goods (OCTG), a key end-market for steel sheet.

A rotary rig rotates the drill pipe from the surface to either drill a new well or sidetrack an existing one. Wells are drilled to explore for, develop, and produce oil or natural gas. Baker Hughes’ rotary rig count includes only those rigs that are significant consumers of oilfield services and supplies.

For a history of the US and Canadian rig counts, visit the rig count page on our website.

In Europe, market participants are concerned over near term end-use demand, and this has weighed on potential price support from restocking. At the same time, imports have continued to arrive and have reduced buyers’ need to source from domestic mills. We do not expect to see these factors change much over the coming month.

The Chinese market is waiting to see evidence of higher demand from recently announced stimulus measures. Supply-side restrictions have been enacted at some mills, but larger restrictions have still not been announced. Raw material costs have increased but with demand weak and supply cuts, limited margins will continue to be squeezed. Developments in China will be key to price direction in other areas of Asia. In ​Southeast Asia, and particularly in India, some seasonal restocking has allowed domestic prices to rise. There are also expectations in the market that exports to Europe and the Middle East will rise. As such, we see some price support heading into October for much of Asia, especially in the Indian domestic market.

Looking at South America, domestic demand in Brazil remains weak, although some market participants expect it to rise over the near term. Still, supply availability in the country is high and an uptick in demand is unlikely to cause a meaningful upswing in prices. At the same time, import availability remains high as Brazilian prices sit at a 22% premium over imported Chinese material.

The US Midwest premium stayed between 19.5–20 ¢/lb but with very little trading activity. There is speculation that the premium will likely continue to sit in the low 20 ¢/lb range into 2024. Despite careful inventory management, there is still a large amount of unsold stock.

Novelis Shares Progress Towards Goals

Novelis released its sustainability reports for FY 2023, which highlight the company’s progress towards its sustainability goals. The goals include key environmental metrics, employee safety, diversity and inclusion; and community engagement.

With a 14% reduction in FY 2023 (which encompasses scopes 1, 2, and 3), the company reported progress toward its objective of a 30% decrease in carbon emissions by 2026 from its FY 2016 baseline.

Maximizing the use of recycled aluminum into its products is one of Novelis’s main sustainability strategies. In FY 2023, the company utilized 61% recycled material across all products globally. Additionally, it recycled 2.3 million metric tons of aluminum.

UAW Strike Will Impact the Recycled Aluminum Industry   

Auto workers are currently advocating for a 40% general wage increase during the four-contract period. The auto makers countered with approximately 20% in pay raises as of the end of this week. Additionally, the United Auto Workers (UAW) has relinquished its demand for cost-of-living adjustments but maintains its stance on securing protection against the transition to electric vehicles (EVs).

Several prevailing economic conditions in the US and globally stand to influence these negotiations, which affect the recycled materials industry. Despite elevated inflation and interest rates, increased consumer purchasing power has driven heightened demand for goods. Demand increase includes light vehicle sales, while low consumer debt delinquencies further bolster this trend.

While the strain on supply chains following the Covid-19 pandemic has gradually eased over the last 18 months, strikes may exacerbate this pressure. High Consumer Price Index (CPI) and energy and oil prices provide the UAW with leverage in its quest for higher wages. This potentially higher wage standard within the auto industry may trigger increased wage demands from workers in the scrap and recycling aluminum market.

Picket Lines Remain Up, and Hard Lines Form

We’re well into the stand-up strike authorized by the UAW, targeting the Big 3 US automakers at GM in Wentzville, Mo.; Stellantis in Toledo, Ohio; and Ford, in Wayne, Mich. So far there is no real traction towards a settlement. The strike sent 13,000 rank-and-file union workers to the picket lines, idling 9% of the auto industry’s workforce. The strike has caused auto makers to furlough thousands of workers at downstream assembly plants, as production and output are constrained by supply shortages from the three facilities effected by the strike. 

As both sides continue negotiations, so do their plans to ramp-up the pressure. The OEMs have indicated that further layoffs may be likely as the strike continues. The UAW has targeted key bottleneck supply plants in this initial phase of the stand-up strike, preserving both strike funds and options for larger assembly plants in subsequent strike phasing. Pickup truck assembly plants are possibly in line for walkouts due to their attractive volumes and profit margin profile.

CRU’s aluminum industry contacts indicate that, for now, aluminum mills are shipping at pre-strike rates. Ford, GM, and Stellantis hold a combined 40% market share of North American light vehicle sales. Should this be a prolonged strike, market share will shift to other brands as the North American consumer remains hungry for new cars and light trucks. CRU’s auto body sheet (ABS) forecast had held better than 8% growth year-over-year (YoY), an additional 160,000 metric tons of ABS demand for 2023.

In a tight US labor market, where there are nearly nine million open job postings, and less than two million people reported on unemployment rolls, union negotiators have a strong position. Across the table, OEMs are carrying higher inflation costs for labor, energy, and materials alongside the transition costs to new energy vehicles. Amid the labor news, the US Federal Reserve Bank held interest rates steady on Wednesday, despite earlier hints of another 25-basis point move up to further curb inflation. While another rate hike is not off the table for 2023, before an election year in 2024, the convergence of fiscal, labor and political agendas will be interesting.

To learn more about CRU’s services go to https://www.crugroup.com/analysis/aluminium/

By Marziyeh Horeh, CRU Aluminum Analyst, Marziyeh.Horeh@crugroup.com

The institute said “these comments particularly relate to import regulation, export regulation, internal policies affecting trade, intellectual property rights, and other WTO commitments.”

AISI said that in 2023 crude steel production in China is expected to exceed 1 billion metric tons for the fifth consecutive year. This is ~10 times the annual steel demand in the US.

“AISI strongly urges the Biden administration to take action to hold China accountable for its trade-distorting policies and practices,” the institute wrote. This can be accomplished by “reinforcing the trade actions taken by the previous administration.” These measures “aimed to counter China’s export-driven economic policies that adversely impact US steelmakers.”

The institute noted there is “a broad, international consensus, based on an overwhelming amount of evidence, that China has largely abandoned its policy of liberalizing its economy.” Instead, AISI said, China “continues to adhere to a policy of state capitalism that is antithetical to the principles of free and fair trade.”

AISI submitted the comments in response to a request from the Office of the USTR. They were given to the interagency Trade Policy Staff Committee (TPSC). View the full document here.

The company said the strut and accessories range from clamps and fittings to brackets and threaded rods. Also, they can be co-loaded with steel conduit from Western Tube in Rochelle, Ill., and Wheatland Tube based in Wheatland, Pa., to arrive in one delivery.

“With multiple finishes, sizes and punch configurations plus accessories to fit any job, ZI-Strut is truly a one-stop shop for the majority of strut installations,” Todd Walrod, VP of electrical with Wheatland Tube, a division of Zekelman Industries, said in a statement on Sept. 20.

Zekelman Industries includes the operating divisions of Atlas Tube, Picoma, Sharon Tube, Wheatland Tube, Western Tube and Z Modular.

The UAW did not expand its strike against Ford because “real progress” had been made in negotiations with the Dearborn, Mich.-based automaker, Fain said in a Facebook Live stream on Friday.

GM and Stellantis, in contrast, “need some serious pushing,” he said.

Also, the UAW will remain on strike at the three plants it struck last week, Fain said.

He acknowledged that parts shortages could impact consumers across the US looking to have their vehicles repaired. He said they should channel that “frustrating” experience into action against what he called “price gouging”.

That was a reference to the high sales prices car dealers have enjoyed thanks to supply chain snarls and increased demand. Those trends stem from the early days of the Covid-19 pandemic.

Negotiations

Ford has moved to cut back on “tiers” in which newer hires make significantly less in wages and benefits than veteran workers. It has also reinstated cost-of-living adjustments (COLA) that were suspended in 2009, Fain said.

Recall that the UAW made significant concessions to automakers in the wake of the 2007-08 global financial crisis. The panic resulted in Chrsyler (now owned by Stellantis) and GM receiving government bailouts.

“To be clear, we are not done at Ford. … But we do want to recognize that Ford has shown that they are serious about reaching a deal,” Fain said. “At GM and Stellantis, it’s a different story.”

Case in point: Fain said GM had agreed to eliminate tiers for 85% of its union workforce. But the UAW wants that figure to be increased to 100%.

GM Could Use Non-Union Workers

Separately, GM is reportedly looking for volunteers among its salaried, non-union employees to cross the picket line and work at its parts distribution centers, the Detroit Free Press said in an article on Friday afternoon.

Th paper cited an internal email that it had obtained for which the date was unclear. The email mentioned a “temporary commitment” but added that the length of it would depend on the length of the strike. 

Background

The union began its “stand up” strike last Friday with strikes one operation at each of the “Big Three” union-represented automakers: a GM plant in Wentzville, Mo.; a Jeep plant in Toledo, Ohio (Stellantis owns the Jeep brand), and a Ford plant in Wayne, Mich.

The UAW has deployed what it calls a “Stand Up” strike. The tactic involves striking specific plants, and expanding the strike as it sees necessary to increase leverage at the bargaining table.

It’s not just the UAW that is exerting pressure. Automakers have responded by laying off workers at plants impacted by the strike,

A prior four-year labor contract between the UAW and the “Big Three” expired at midnight on Sept. 15.

Editor’s note: This is a breaking news story. Please check back for updates.

Stelco, Canada’s biggest steelmaker, “is in talks with a potential partner on its bid, the people said, asking not to be identified because the details are private,” according to Bloomberg.

The article’s sources noted that no final decision has been made and that Stelco could opt against making a bid.

U.S. Steel declined to comment for this article. Stelco did not respond to a request for comment.

Several companies are reported to be in the hunt for the Pittsburgh-based steelmaker.

Cleveland-Cliffs publicly made a bid for U.S. Steel, one that U.S. Steel rejected. ArcelorMittal has also been said to be interested in the company.

Guppy Swallowing a Whale?

U.S. Steel is much larger than Stelco, which operates a sole blast furnace at its Lake Erie Works in Nanticoke, Ontario, according to SMU’s blast furnace status table.

In contrast, U.S. Steel has six active blast furnaces. That includes two at its Mon Valley Works in Pittsburgh and four at its Gary Works in northwest Indiana. The company also has a temporarily idled blast furnace at its Granite City Works near St. Louis.

U.S. Steel’s operations in addition include Big River Steel, an EAF mill in Arkansas considered to be among the crown jewels of the company. Other assets include energy tubular mills, iron ore mining and pellet operations in Minnesota, and its UPI sheet processing facility in Pittsburg, Calif.

In Europe, meanwhile, the company owns a large steel works in Kosice, Slovakia. It sports three blast furnaces and annual raw steel capacity of five million tons.

A Reasonable Bull Case

Steel market participants at the lunch reasoned that we might be at or near a sheet price bottom – as counterintuitive as that might sound with the UAW strike likely poised to expand Friday afternoon. They reasoned along the lines of what I wrote in Final Thoughts on Tuesday.

Namely, demand outside of automotive remains steady on average, even if it’s highly variable from customer to customer. Steel consumers are running inventories lean. And offshore imports are not competitive – unless you’re ordering thin-gauge galvanized. (Note I wrote “offshore.” Imports from Canada and Mexico are competitive – including imports into the Midwest from Mexico, according to folks at the lunch.)

The result: Deals below $600 per ton ($30 per cwt) for HRC are probably out of the market. That figure matters because ~$600/ton was kicked around as a rough breakeven point for some US mills.

There also seemed to be a consensus that the UAW strike would last no longer than approximately 4-6 weeks. And once a deal is within sight, mills probably won’t be shy with price increases. Especially not after the market got used to $100-per-ton price hikes earlier this year.

Our latest survey data broadly reflect that consensus.

Case in point: 76% of survey respondents think prices have already bottomed, will later this month, or will in October:

Also, about two-thirds think that prices two months from now will be roughly where they are now (our current average HRC price is $660 per ton) or back into the $700s per ton:

I asked folks at the lunch how to square that mostly constructive outlook, and our own somewhat bullish survey results, with more than 80% of service centers reporting that they continue to lower prices:

The takeaway: Service centers would stop cutting prices as soon as mills did. And, even if we do see a “failed” price hike, it will at least temporarily stabilize tags – akin to what we saw when mills announced price hikes last June.

How Long Will the UAW Strike Last?

I questioned how safe it was to assume that a strike would only last six weeks. That’s how long the UAW struck GM in 2019, the last time the union negotiated a labor contract with the “Big Three.” But history doesn’t usually repeat.

Or does it? Another interesting factoid: Since 1993, and among strikes involving more than 1,000 workers, the average length has been five weeks. That came from a good webinar held Wednesday afternoon by the Institute of Scrap Recycling Industries (ISRI): UAW Strike and Its Impact on the Recycled Metals Industry.

Roughly 13,000 workers are on strike now at three plants. And the UAW, as ISRI noted, has $825 million in its strike fund – enough to support a full strike, not just one at individual plants, for nearly 11 weeks.

So what happens if we were to see a more extended work stoppage? The consensus at the Wolfe lunch was that (a) sticker prices for new cars would go up, (b) another round of discounting might be necessary for mills to tide themselves over, and (c) the snapback in demand and in steel prices would be even more pronounced once automotive production resumed. So let’s say a big price rebound in Q4 if the strike not protracted and a potentially huge price spike in Q1 if negotiations drag on.

Keep in mind, the generally constructive outlook on price also assumed that fall maintenance outages would be extended. It also assumed that at least one or two more blast furnaces might be idled. Why? For starters, Granite City, which has been temporarily idled, does not have as much exposure to automotive as some furnaces that are still running.

Another interesting wrinkle. The strike will probably extend contract negotiations. They unofficially start at Steel Summit in August. Sometimes they are wrapped up as soon as Halloween. But mills aren’t keen to negotiate contracts from what they see as a position of weakness.

That means they’ll probably wait at least until a tentative deal with the UAW is in hand before negotiating pricing contracts. The result: Good luck getting your contracts done my Christmas this year.

Shawn Fain Takes to Twitter (aka X)

We’ll know more about what the future might hold on Friday should the UAW’s noon deadline pass with no new labor agreement.

Automakers might reasonably say that they cannot offer massive wage increases, better benefits, and a shorter work week while also having any reasonable hope making the investments necessary to transition to EVs.

That argument, however, does not appear to be gaining traction with UAW president Shawn Fain. He on Thursday posted a bargaining update on X, formerly Twitter. It said… Well, I can’t write it in a family publication like ours.

Take a look yourself. It’s a GIF from the 2017 movie The Hitman’s Body Guard featuring Samuel L. Jackson. He is in no mood to bargain.

Let’s think about some of the signals that support this recent turn. First, according to our calculations, domestic prices dipped below delivered global pricing this week. This is historically a bullish signal, albeit one that takes time to trigger a rally. Furthermore, domestic producers appear to be quickly approaching cost support (even after the recent lower settlements of scrap). Another signal comes from the plumbing of the forward curve.

The top panel of the chart above shows “Managed Money’s” net speculative positioning (i.e., whether participants without a physical position are long or short futures) as the shortest they have been since May, through 9/12 (Tuesday). The second panel shows aggregate open interest (total amount of contracts exposed to market fluctuations) and aggregate volume (total amount of contracts that traded in each day). Through Monday, these charts were telling a clear story. Futures prices were mostly grinding lower, volume was muted but healthy, open interest was increasing – all driven by speculators getting shorter. Since then, prices have firmly broken out of that recent range with the highest volume trading day in months occurring on Wednesday. Furthermore, open interest decreased on Wednesday – a signal that participants with short positions “paid up” to cover their exposure, essentially throwing in the towel. To be clear, we will not receive confirmation that these participants were speculators for another two weeks due to the net spec data lag, but it is a reasonable expectation given the trend at the beginning of the month.

Taking all of that into account, there are good reasons to believe that the forward curve has bottomed out for the time being, but now is a good time to include our typical reminder that the forward curve is not a predictor of physical prices. Starting tomorrow, new, and unknown shocks will impact the curve in unanticipated ways, but given all the information we have today, let’s briefly look at the main upside and downside risks to this curve namely, the supply/demand balance given the United Auto Workers (UAW) strike. To start, it should be noted that the unexpected temporary idling of U.S. Steel’s Granite City Furnace ‘B,’ near St. Louis, is likely the primary factor for the recent shift in forward curve pricing, pushing supply available below anticipated demand.

Prior to that action, it was estimated that the UAW strike fund had the capacity to sustain a full strike for approximately 2.5 months. During this time, the loss in steel consumption would have been greater than the planned production outages. The main downside risk now is the strike lasting longer than anticipated. While it is not our base case, the UAW’s “stand up” style of striking could aim to disrupt the broader auto supply chain, leading to plant closures without direct strikes. In such a scenario, workers could access unemployment benefits, lasting 20-26 weeks depending on the state without the UAW needing to support them through the strike fund until those benefits expire.

Now, taking a step back from game theory/speculation corner and looking at the broader economy: data continues to surprise to the upside, shown here by the “Bloomberg Surprise Index” for the US which is calculated as the percentage difference between the actual economic data release vs. the median of analysts’ forecasts of the same release.

This is also perfectly encapsulated by the fact that the Federal Open Market Committee (FOMC) more than doubled their expectation for year-end 2023 GDP growth from 1% to 2.1% in their latest summary of economic projections, published Sept. 20. While it is important to note that like any forecast, this should be taken with a grain of salt and there are meaningful headwinds in front of the economy the sustained resilience is encouraging. Furthermore, although these signals are broadly promising, it would be disingenuous to suggest that steel consumption has not been negatively impacted by higher interest rates, inventory management, and softening demand. However, going forward, we view the physical market as pricing in too much asymmetric downside risk going into Q4 given promising seasonal fundamentals and domestic producers eagerness to throttle back production.

About Flack Global Metals

In 2010, Flack Global Metals (FGM) was founded with the mission to reinvent how metal is bought and sold. Over 13 years later, the company has evolved into a hybrid organization combining an innovative domestic flat-rolled metals distributor and supply chain manager, a hedging and risk management group supported by the most sophisticated ferrous trading desk in the industry known as Flack Metal Bank (FMB), and an investment platform focused on steel-consuming OEMs called Flack Manufacturing Investments (FMI). Together, these entities deliver certainty and provide optionality to control commodity price risk in the volatile steel industry.

Disclaimer: The content of this article is for informational purposes only. The views in this article do not represent financial services or advice. Any opinion expressed by Flack Global Metals or Flack Metal Bank should not be treated as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Views and forecasts expressed are as of date indicated, are subject to change without notice, may not come to be and do not represent a recommendation or offer of any particular security, strategy or investment. Strategies mentioned may not be suitable for you. You must make an independent decision regarding investments or strategies mentioned in this article. It is recommended you consider your own particular circumstances and seek the advice from a financial professional before taking action in financial markets.

If you don’t know much about this subject, you’re in luck. Tim Saxon, the chief marketing officer for electrode manufacturer Resonac, made some time to talk to us about melting steel.

A lightly edited version of the interview is below.

Steel Market Update: Tell me a little about what you do at Resonac.

Tim Saxon: I’m the chief marketing officer, so I have a few responsibilities. The market analysis portion of it. We study the electrode, steel, and scrap markets to get a feel for where things are going. And then I also oversee the promotions, branding, and advertising side.

SMU: You guys make electrodes for use in steel mills?

TS: We are one, if not the world’s, largest ultra-high powered graphite electrode supplier. You’ll hear the term UHP and that’s ultra-high power; there are different grades. That’s primarily for melting furnaces. We have facilities all over the world: US, Spain, Austria, Malaysia–we have one in Japan.

SMU: How often do you have to replace an electrode?

TS: You’re not actually melting the steel with the electrode; you’re melting the steel with the arc that comes from the electrode. The electrodes oxidize and become part of the bath. It becomes part of the steel.

SMU: You mentioned there are a few grades of electrodes. What are the differences?

TS: One of the thing that’s important is that there is no universally agreed upon standard for electrodes. How the electrode is made is what determines the grade. Our primary raw material is needle coke. Needle coke is a byproduct of companies like Phillips 66 and other refineries. It’s the equivalent of scrap to an electric furnace steelmaker. There are a couple other ingredients like binder pitch and a couple others like stearic acids and things like that. Then the electrode is extruded and baked. All the volatiles get baked out.

SMU: It sounds like the oil industry plays a major part in creating electrodes. How do you guys look at decarbonization?

TS: I think all electrode suppliers are probably trying to explore different kinds of carbons like biocarbon, because I think that’s really where the next frontier is. But one of the ironic parts of the electrode business is we get the binder pitch that we use from the blast furnace and coke ovens. So that’s an ongoing question. As they start to shutter these blast furnaces, what’s going to happen to the pitch supply?

SMU: Are there other ways Resonac is integrating a green approach?

TS: We have really automated a lot of our facilities. In our Spanish facility for example, we’re reusing heat from our processes to preheat our other furnaces. At our Austrian plant we use process heat to heat the water for the village. We have this symbiotic relationship where they send water and then we use sort of our heat elements to heat the water that then goes back to the town and saves it for the residents. Our Japanese facility is on 100% hydropower. We’ve built this irrigation system for the farmers where we control the rice field flooding every season. So we’re helping the farmers and helping the citizens.

SMU: Wow! Sounds like you guys are doing some great things.

TS: Yeah, it’s a great time to be in the industry.

SMU: How did you choose the steel industry?

TS: I grew up in McKeesport, Pa. My dad and grandfather were both steel workers. I had an opportunity after college to get into the refractory business and I really enjoyed it. I’ve always loved the industrial part of the business.

SMU: Being in a leadership position, how do you hire and retain talent?

TS: We’re want to become the employer of choice and we think outside the box when it comes to recruiting. We’ve implemented several programs including:

• Our Way to Excellence – promotes cross-functional collaboration, transformational leadership and talent development.
• Employer of Choice Program – a global initiative to make Resonac Graphite the company where our employees and their loved ones want to work.
• Eager2Grow – the ongoing global program for Leadership Development of our today’s and tomorrow’s leaders.
• Focus on Success (FOS) – we utilize actionable data, integrated visual management tools, and robust communications platforms. Our teammates become real change agents that drive high performance, empowerment, opportunity, commitment, and engagement 

We hire for attitude and train for aptitude. We stand by our values and live them. Our values include a solid vision and solid integrity; passionate and results driven; being agile and flexible; and having open minds and open connections. Resonac’s purpose is to change society through the power of chemistry.

SMU:  It sounds like the company has a lot to be proud of.

TS: We focus on production-driven organizations rather than ones only worried about purchasing. Resonac is very, very committed to quality and a sustainable supply chain. There’s a lot that we do that our competitors don’t do. We have a complete global team of technical services and have invested a lot to help the furnaces run efficiently.

Click here to learn more about Resonac.

Raúl Gutiérrez Muguerza, president of the Monterrey, Mexico-based longs producer told Reforma the project would take three years to complete. He noted that the new steel mill would be “be “one of the most modern plants in the world.”

A company spokesman confirmed to SMU that it would be an electric-arc furnace mill but provided no further detail by time of publication.

“The purpose is to promote regional development and increase the production capacity of the business units with investments destined for the national market,” Muguerza said in the article.

He said the company hopes to generate close to a thousand direct and five thousand indirect jobs with the investment.

“This decision promotes the growth of business partners and clients, while seeking to address part of the new demand from foreign companies in Mexico derived from nearshoring,” Muguerza said.

The deputy USTR also stressed “the lack of transparency regarding Mexico’s steel and aluminum imports from third countries, and encouraged Mexico to enhance its monitoring of Mexican steel and aluminum exports to the United States in accordance with the 2019 Joint Statement by the United States and Mexico on Section 232 Duties on Steel and Aluminum.

The meeting took place ahead of the second United States-Mexico-Canada Agreement (USMCA) Small- and Medium-Sized Enterprise (SME) taking place Thursday in Mexico City, the statement said.

Since the beginning of Q1, US HRC had been significantly more expensive than imports, peaking in mid-April, and ballooning to a 23% premium on average. Imports are now more expensive, given that US tags have fallen by $230 per ton ($11.50 per cwt) just since mid-July. However, offshore product is down on average just $32 per ton over the same period.

HRC tags stateside are at an average of $660 per net ton this week, declining by $30 from the previous week. They’ve slipped to their lowest level since the first week of December 2022. Domestic prices are now down $500 per ton since peaking this year at $1,160 per ton back in April.

Overseas prices have also been weakening since April, but declines have been less pronounced. That has caused domestic HRC pricing to reverse quickly and become noticeably cheaper.

Domestic hot band is now 9.4% cheaper than foreign material. It was 15% more expensive just about two months ago.

SMU uses the following calculation to identify the theoretical spread between foreign HRC prices (delivered to US ports) and domestic HRC prices (FOB domestic mills): Our analysis compares the SMU US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and east and southeast Asia ports. This is only a theoretical calculation because costs to import can vary greatly, influencing the true market spread.

In consideration of freight costs, handling, and trader margin, we add $90 per ton to all foreign prices to provide an approximate CIF US ports price to compare to the SMU domestic HRC price. Buyers should use our $90-per-ton figure as a benchmark and adjust up or down based on their own shipping and handling costs. If you import steel and want to share your thoughts on these costs, we welcome your insight at david@steelmarketupdate.com.

Asian Hot-Rolled Coil (East and Southeast Asian Ports)

As of Thursday, Sept. 21, the CRU Asian HRC price was $517 per ton, unchanged from the previous week. Adding a 25% tariff and $90 per ton in estimated import costs, the delivered price of Asian HRC to the US is approximately $736 per ton. The latest SMU hot rolled average for domestic material is $660 per ton.

Now $76 per ton cheaper, US-produced HRC has lost its parity with steel imported from Asia. And it’s trending cheaper ahead of the fourth quarter.

Italian Hot-Rolled Coil

Italian HRC prices fell week over week (WoW,), down $23 per ton this week to roughly $619 per ton. After adding import costs, the delivered price of Italian HRC is approximately $709 per ton.

Domestic HRC is now theoretically $49 per ton cheaper than imported Italian HRC. That is a far cry from late March, when US tags were $260 per ton more expensive than those of imported Italian hot band.

German Hot-Rolled Coil

CRU’s latest price for German HRC declined last week, down $12 per ton WoW to $631 per ton. After adding import costs, the delivered price of German HRC is roughly $721 per ton.

Domestic HRC is now theoretically $61 per ton cheaper than imported German HRC. That’s down $18 per ton WoW, and still a $294-per-ton change vs. late March when German hot band was 20% cheaper than US product.

Figure 4 compares all four price indices. The chart on the right zooms in to highlight the difference in pricing from the second quarter of this year to the present.

Notes: Freight is important in deciding whether to import foreign steel or buy from a domestic mill. Domestic prices are referenced as FOB the producing mill, while foreign prices are CIF the port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel. It’s also important to factor in lead times. In most markets, domestic steel will deliver more quickly than foreign steel.

Effective Jan. 1, 2022, the traditional Section 232 tariff no longer applies to most imports from the European Union. It has been replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. SMU still includes the 25% Section 232 tariff on foreign prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

The ABI is a leading economic indicator for nonresidential construction activity with a lead time of 9-12 months. Any score above 50 indicates an increase in billings. A score below 50 indicates a decrease.

Fewer clients signed new design contracts in August compared to the previous eight months, with the new contract index falling to 47.9 from 50.0 the month prior.

Billings declined for the 11th consecutive month at firms in the Western region, dropping to 45.8 from 49.6. Those in the South remained roughly flat, inching up to 49.9 in August from 48.9 in July. Billings in the Northeast rose to 50.6 from 49.3. Those in the Midwest declined from 51.6 in in July to 48.1 in August, after reporting the strongest billings in the country for the past nine months, the AIA report said.

Firms with a commercial and industrial focus reported a drop from 52.7 in July to 51.5 in August, while residential firms went from 45.4 to 44.1. Invoices from firms with a specialty in institutional projects were flat.

Employment continues to be a problem for many architecture firms, however.

“With many firms continuing to report difficulties finding enough qualified staff, this month we asked them about outsourcing domestic design work offshore (e.g., subcontracting work to individuals or firms in other countries that are not part of their company),” AIA said.

Of responding firms, 16% noted that their company is outsourcing domestic design work to overseas companies, according to AIA. The highest being for multifamily residential specialization. Overall, those firms report a high level of satisfaction for the work that is being done offshore.

One firm in the Midwest with an institutional specialization noted that business has softened to a degree, and its clients are slowly paying their invoices.

A small firm in the South with a commercial/industrial specialization said that business remains strong. “We have received quite a few preliminary scope projects, which could generate strong utilization in the fourth quarter and a strong start to 2024,” reported the firm.

An interactive history of the AIA Architecture Billings Index is available on the SMU website.