SMU’s Current and Future Steel Buyers Sentiment Indices both edged down this week, based on our most recent survey data.
Every other week we poll steel buyers about sentiment. The Steel Buyers Sentiment Indices measure how steel buyers feel about their company’s chances of success in the current market, as well as three to six months down the road. We have historical data going back to 2008. Check our interactive graphing tool here.
SMU’s Current Buyers Sentiment Index stood at +55 this week, down from +57 two weeks prior (Fig. 1). This marks the third consecutive decline and the lowest reading this year.
SMU’s Future Buyers Sentiment Index measures buyers’ feelings about business conditions three to six months in the future. This week, the index dropped to +66 from +71 two weeks earlier (Fig. 2). After briefly rising above +70 at the previous check, we’ll see if this current reading is just a blip, or more of a downward trend.
Measured as a three-month moving average, the Current Sentiment 3MMA slipped to +60.00 vs. +61.50 at the last market check. (Fig. 3).
This week’s Future Sentiment 3MMA rose to +64.33 from +62.00 two weeks earlier (Fig. 4).
What SMU Survey Respondents Had to Say:
-“Despite the turbulence, we have adapted to the market.”
-“We will be challenged still.”
-“We believe that we can exceed the established sales goals of the company.”
-“The future is cloudy and unclear as of now.”
-“We aren’t expecting pricing to go up anytime soon, so our outlook is positive.”
-“Buyers are now actively reducing their inventory.”
About the SMU Steel Buyers Sentiment Index
The SMU Steel Buyers Sentiment Index measures the attitude of buyers and sellers of flat-rolled steel products in North America. It is a proprietary product developed by Steel Market Update for the North American steel industry. Tracking steel buyers’ sentiment is helpful in predicting their future behavior.
Positive readings run from +10 to +100. A positive reading means the meter on the right-hand side of our home page will fall in the green area indicating optimistic sentiment. Negative readings run from -10 to -100. They result in the meter on our homepage trending into the red, indicating pessimistic sentiment. A reading of “0” (+/- 10) indicates a neutral sentiment (or slightly optimistic or pessimistic), which is most likely an indicator of a shift occurring in the marketplace. Sentiment is measured via SMU surveys twice per month.
The mill negotiation rate for sheet products slipped this week, though plate jumped, rising by 25 percentage points, according to SMU’s most recent survey data.
The percentage of respondents saying steel mills were willing to talk price on plate stood at 82% this week, up from 57% two weeks earlier, while all the sheet products SMU surveys notched declines.
Every two weeks, SMU asks steel buyers whether domestic mills are willing to negotiate lower spot pricing on new orders. This week, 76% of participants surveyed by SMU reported mills were willing to negotiate price on new orders, down four percentage points from two weeks earlier (Fig. 1). The last market check marked the first time the reading cracked the 80% mark since late June.
Fig. 2 below shows negotiation rates by product. Hot rolled fell one percentage point from two weeks earlier to 89% of buyers reporting mills more willing to negotiate price; cold rolled stood at 84% (-2 pts); galvanized at 90% (-5 pts); and Galvalume at 34% (-41 pts). Recall that Galvalume can be more volatile because we have fewer survey participants there.
Here’s what some survey respondents had to say:
–“(Willing to negotiate on plate), depending on grade and size.”
–“UAW possible strike is an unknown risk.”
–“ With tonnage you can get sub-$700 price (on HRC).”
–“ Very few large transactions (on HRC) received. Those that were, at numbers sub $750.”
Note: SMU surveys active steel buyers every other week to gauge the willingness of their steel suppliers to negotiate pricing. The results reflect current steel demand and changing spot pricing trends. SMU provides our members with a number of ways to interact with current and historical data. To see an interactive history of our Steel Mill Negotiations data, visit our website here.
SMU sources have a mixed outlook for US scrap prices for September.
One source said the market for prime scrap is a bit soft and could go down slightly, “but shredded and HMS looks sideways to up $10-20 per gross ton.”
“This could change if there is a UAW strike,” the source added.
A second source said “primes are really up in the air at this point.” He added that “some mills will seek to drop prices to try and maintain margins, while others will keep prices stable heading into autumn.”
Prices should increase for grades such as HMS and turnings, according to the second source. “Demand for these grades are on the rise as mills seek to take advantage of their low prices relative to other grades,” he said.
Regarding prime, a third source said prices should remain firm — despite mills saying they will go down — if mills want to own the prime scrap now in light of a possible UAW strike.
He said with export prices up and firm, “I expect no worse than a sideways US domestic market in September,” and maybe up for some grades.
“Cut grades remain tight, and shredder feed flows are not overwhelming,” the third source noted.
“Demand is good but not great and mills may temper some buy programs to align with upcoming maintenance outages,” the third source said.
Respondents to SMU’s most recent survey took a mostly sideways view (67%) to prime scrap prices for September. Only 12% expected prime scrap tags to rise.
The third source said that the “bottom line is that with export and domestic pricing relatively at par, we are trading in a relatively narrow pricing band for the time being until demand materially drops or increases.”
SMU’s August scrap prices stood at:
• Busheling at $430-470 per gross ton, averaging $450, up $5 from the previous month.
• Shredded at $370-410 per gross ton, averaging $390, unchanged from the previous month.
• HMS at $310-350 per gross ton, averaging $330, up $20 from the previous month.
The common stock of Radius Recycling, formerly Schnitzer Steel Industries, will start trading on NASDAQ under the symbol ‘RDUS’ at the open of market trading on Sept. 1.
The Portland, Ore.-based scrap recycler and long steel producer said on Aug. 30 ‘RDUS’ will replace its current ticker symbol ‘SCHN,’ adding that the new ticker symbol aligns with the rebranding from Schnitzer Steel to Radius Recycling announced in July.
Radius noted that no action is required by existing shareholders with respect to the ticker symbol change.
Construction jobs may have increased year over year in July, but many positions remain unfilled.
According to a report released by the Associated General Contractors of America (AGC), construction employment was boosted in 226 of 358 metro areas between July 2022 and July 2023. The association said there is still demand for various types of construction, but hundreds of thousands of vacant positions remain.
“Demand for construction projects remains strong nationwide and most metros have continued to add construction jobs in the past year,” said AGC’s chief economist Ken Simonson. “But there were 378,000 unfilled job openings in construction at the end of July, which suggests that even more markets would have posted year-over-year employment increases if there were enough qualified workers to fill the openings.”
The Dallas-Plano-Irving area added the most jobs with 18,100, followed by New York City with 13,400. The least amount of jobs added were in Corvallis, Ore., at just 200.
Decreases were seen, with the largest number lost in the Miami-Miami Beach-Kendall, Fla., area, which lost 4,100 jobs.
“We want to understand why firms are having trouble finding qualified workers and the consequences of those shortages,” said the association’s CEO Stephen E. Sandherr.
New workforce data will be released on Sept. 6 as part of the AGC’s and Autodesk’s annual Construction Workforce Survey. Sandherr said the information is “designed to help policy makers and the industry identify steps they can take to prepare, recruit and retain more qualified workers.”
Cleveland-Cliffs Inc. and the United Steelworkers (USW) at Cliffs’ Northshore Mine in Minnesota have reached a tentative labor agreement.
Pending ratification by the union, the new three-year labor agreement will cover 430 USW-represented workers at the mine.
The workers there mine taconite in Babbitt, Minn., make iron ore pellets in Silver Bay, Minn., and transport products and tailings.
“The United Steelworkers have demonstrated their unwavering support of Cleveland-Cliffs throughout the years, and this new labor agreement for Northshore further strengthens our collaborative partnership. We look forward to working together with our new USW partners at Northshore and continuing to build a strong workforce for our present and future competitiveness,” Cliffs’ chairman, president, and CEO Lourenco Goncalves said in a statement.
Recall that Cliffs called back workers to the previously idled Northshore mining operations earlier this year. And in July, workers there joined the USW.
We’re roughly a week removed from the 2023 Steel Summit and some of the discussions, both on stage and the the sidelines of the event, remain of critical importance to many in the industry.
Between some of my weekly calls and early survey results, the possible United Auto Workers (UAW) union strike and what the domestic steel landscape may look like with the potential sale of U.S. Steel are still hot topics.
I also had the privilege today to join in on HARDI’s monthly call. The expiration of the current UAW labor contract with Ford, General Motors, and Stellantis on Thursday, Sept. 14, at 11:59 p.m. ET, again controlled a solid portion of the discussion.
It’s still early, and we have more data coming in as we speak in this week’s survey, but some early indications from the market that might be compelling to look at considering the UAW situation.
Seventy-seven percent of survey participants – namely survey center and OEM executives – believe a strike is imminent. A week ago we kicked off the Summit with a snap poll, and revealed that 67% of the 1,400-plus in the room thought a strike would happen. But what hasn’t changed, is the sentiment that most believe it will not last that long.
Here’s what some of those who replied had to say:
“There will be a strike, but it will be short-lived.”
“The strike seems to be imminent.”
“Maybe a new deal as a strike would be bad for all.”
“40% wage increase and 32-hour work week? Get real.”
“The two sides are far apart on wages.”
“UAW has an $800,000,000 strike fund, according to my sources. They have time/money to hold out.”
“A strike against one but not all three.”
“If a strike happens, it will be very short – possibly two weeks.”
“I’m going to say, “New Deal,” just because I hope so. In reality, there probably will be a small stoppage, though.”
“Unlikely to be an extended strike. It’s not in the union’s interest or the automakers’ interest.”
“Duration remains to be seen.”
“The wage levels requested are very high.”
It’s not much of a surprise that we’ve seen a bit of a shift from survey participants when it comes to prices, and when they expect them to bottom. This is especially true given the sentiment expressed above.
Just two weeks ago, 20% of respondents believed sheet prices had already bottomed, and that has shifted to just about 7%. And now 84% believe tags will likely bottom in either September or October, a boost from just two weeks ago when 60% believed that to be the case (Figure 1).
But it’s not just when prices will bottom but where they’re expected to be two months from now, early in the fourth quarter (Figure 2).
Just two weeks ago, sentiment was a bit mixed. A solid 28% believed prices would be roughly where they are now, between $700-749 per ton ($35.00-37.45 per cwt) halfway through October. And just about 14% expected tags to be in the $600s or lower. In total, just about 40% expected hot band tags to be sideways-to-down from where they presently are.
As of now, more than 60% of those polled in this week’s SMU survey anticipate hot-rolled coil prices to be where they currently are or lower come late October. The major shift is where less than 10% expect prices to be at or above the $800-per-ton mark.
The results support the idea that many, if not most, in the market believe the UAW will strike against at least one of Detroit’s Big Three, but that the downtime will not be an extended one. The current deal expires halfway through September, and by this simple measure, most suspect a deal will be in place by the time September ends, or at the latest sometime in October.
I recall Timna Tanners, managing director of Wolfe Research, stating during the Steel Forecast Panel on the first day of the Summit that roughly 90,000 tons of steel would find its way into the spot market every month if the UAW went on strike vs. Stellantis.
In Sunday’s Final Thoughts, managing editor Michael Cowden took us down memory lane and looked at some lessons learned from the last time the UAW negotiated a new labor deal back in 2019. I encourage you to give it a read if you haven’t already.
The precedent is helpful as we work through the ramp-up in anticipation of the next couple of weeks leading up to the expiration of the current deal. But one thing to keep in mind is that back in 2019, auto inventories were much higher than they are now.
According to a recent report by Cox Automotive, inventory supply was nearly 4 million vehicles for a 95-day supply back in June 2019. Presently, based on July’s data, the total US supply of available unsold new vehicles is about half that at 1.96 million.
Ultimately, SMU doesn’t predict or forecast, and I’m not going to shift away from that, but it’s fair to argue that if a strike does indeed take place – between the UAW and at least one of the automakers – not only could the price decline drastically outpace the ~20% fall seen in 2019’s strike when the union held a six-week work stoppage at GM, but it would be fair to reason that the ~30% snapback could also be considerably outdone as automakers rally to build back potentially historically low inventories.
The next couple of weeks will be closely monitored, and there will be no shortage of talk about the potential work stoppage by UAW members and Detroit’s Big Three.
We are less than two months away from our LIVE Steel 101 Workshop: An Introduction to Steelmaking and Market Fundamentals training course. It will be held in Charleston, S.C., on Oct. 24-25. The workshop will include a tour of Nucor’s Berkeley steel mill. Click here to register.
From all of us at SMU, we’d like to thank you for your business.
Sheet prices have fallen this week, after a small pause last week when prices saw mixed results. Tags have now been largely trending lower since July.
SMU’s average hold-rolled coil (HRC) price slipped to $725 per ton ($36.25 per ton), down $25 per ton from a week ago.
Cold-rolled saw the widest decline vs. last week, down $35 per ton, while galvanized and Galvalume base prices were both $20 per ton lower, respectively. Plate was largely flat, off just $5 per ton week on week (WoW).
Market participants said deep discounting on HRC is still underway, with some sourcing larger tons (think 5,000-10,000 tons) around $640 per ton. Exposure to automotive may be the culprit, explaining why some might be looking to lock up tons now.
Sentiment is still mixed, despite the declines. Concerns regarding second-half demand are gaining momentum, however, driven by growing uncertainty about United Auto Workers (UAW) union negotiations, and what that could mean for steel demand.
Others say they remain a bit less deterred by the potential of a strike, confident a deal will be reached, adding that present demand is more an indication of seasonality and anticipate demand to improve after Labor Day.
SMU has kept all its sheet momentum indicators pointed lower until a clear trend emerges. Our plate momentum indicator remains at neutral.
The SMU price range is $670–780 per net ton ($33.50–39.00 per cwt), with an average of $725 per ton ($36.25 per cwt) FOB mill, east of the Rockies. The bottom end of our range decreased $30 per ton vs. one week ago, while the top end of our range was $20 per ton lower WoW. Our overall average is $25 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: 3–6 weeks
The SMU price range is $900–1,020 per net ton ($45.00–51.00 per cwt), with an average of $960 per ton ($48.00 per cwt) FOB mill, east of the Rockies. The lower end of our range was down $50 per ton WoW, while the top end was down $20 per ton compared to a week ago. Our overall average is down $35 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
The SMU price range is $900–1,000 per net ton ($45.00–50.00 per cwt), with an average of $950 per ton ($47.50 per cwt) FOB mill, east of the Rockies. The lower end of our range was $20 per ton lower vs. last week, while the top end of our range was also down $20 per ton compared to one week ago. Our overall average is down $20 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 $997–1,097 per ton with an average of $1,047 per ton FOB mill, east of the Rockies.
Galvanized Lead Times: 4-9 weeks
The SMU price range is $920–1,020 per net ton ($46.00–51.00 per cwt), with an average of $970 per ton ($48.50 per cwt) FOB mill, east of the Rockies. The lower end of our range was down $30 per ton vs. last week, while the top end of the range was $10 per ton lower WoW. Our overall average was down $20 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 $1,214–1,314 per ton with an average of $1,264 per ton FOB mill, east of the Rockies.
Galvalume Lead Times: 6–8 weeks
The SMU price range is $1,350–1,560 per net ton ($67.50–78.00 per cwt), with an average of $1,455 per ton ($72.75 per cwt) FOB mill. The lower end of our range was unchanged compared to the week prior, while the top end of our range was $10 per ton lower vs. last week. Our overall average is down $5 per ton WoW. Our price momentum indicator on steel plate remains at neutral, meaning we are unsure of what direction prices will go 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 drop in imports from June to July was not as steep as license applications had suggested, but imports were still down both month on month (MoM) and year on year (YoY).
The US imported 2,371,359 net tons of steel products in July, according to a preliminary count by the US Department of Commerce. This was a 15% decline from June’s recent high of 2,797,419 tons. Recall that June’s imports were at a 12-month high.
Compared to year-ago levels, July’s imports were down 11%.
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 fairly steady for most of this year but are still down from the elevated levels seen mid-2021 through mid-2022.
While imports of semifinished steel dropped by a third from June to 523,719 tons in July, they were more than a third above year-ago levels.
Finished steel imports, meanwhile, were 8% lower MoM and 20% lower YoY at 1,847,641 tons in July.
Flat-rolled steel imports declined for a second consecutive month, coming in at 814,701 tons in July. This was a 12% MoM decline and a 19% YoY fall.
While overall flat rolled imports were down MoM, cold-rolled sheet and galvanized sheet and strip imports registered rises of 14% and 2%, respectively. Tin plate imports shot up 26%.
Imports of hot-rolled sheet saw a huge MoM drop, falling 41% from June to 147,446 tons in July.
Pipe and tube imports fell to a 17-month low of 444,099 tons in July.
OCTG imports were down markedly in May, June, and July after having been elevated for the prior six months.
Imports of structural pipe and tube, at 30,757 tons in July, were at a two-year low, and standard pipe imports of 58,035 tons were at a 20-month low.
Mechanical tubing imports, meanwhile, were at almost a two-year high at 63,827 tons in July.
The chart below provides further detail into imports by product, highlighting high-volume steel products.
Although some construction companies have a backlog, many jobs are getting put on hold and this is affecting demand, members of the Heating, Air-Conditioning & Refrigeration Distributors International (HARDI) Sheet Metal/Air Handling Council said this month.
The HARDI members convened for a post Steel Summit webcast meeting on Aug. 29.
At the last few meetings, many members reported healthy demand in their areas, but some softening is starting to be seen in some areas.
“Demand for us in August has been good, but not for all branches,” said one member with locations across the country. “Looking at the branches that have been doing better, it’s because we are paired with companies that are working on larger projects.”
Sales volumes for one member in the South were down from July to August, but up over 2022 for the same period.
Another member reported that jobs are being stalled.
“I’ve been traveling around and there are a lot of contractors saying that jobs are pushed. Everybody has a healthy book, but nobody knows when any of this stuff is starting,” said the participant.
One HARDI member said that it feels like demand in the Midwest is a little stronger. However, he believes the region will see more softening in the coming months.
A service center participant added that demand has been strong, especially in the agricultural sector. However, he believes that services overall are running lean on inventory.
Inventory was generally reported as down to average across all regions.
An end-of-meeting poll asked participants where galvanized prices would be in the next 30 days. 25% said they see prices remaining flat, while 42% said they see prices dropping more than $2 per cwt. Another 29% voted on prices decreasing more than $4 per cwt.
The outlook on where galvanized prices are headed in the next six months was closer, with 33% of participants saying it would be down more than $2 per cwt. 25% said that prices would be up more than $2 per cwt. 21% believe prices will remain flat.
Looking ahead 12 months, 46% of participants think the galvanized base price will be $50-59 per cwt, 17% think prices will increase to $60-69, and 33% see prices dropping to $40-49 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.
Nucor broke ground on its newest micro mill in Lexington, N.C., on Friday.
“This mill will be one of the most energy-efficient mills in the world and will make 100% recycled rebar to support tomorrow’s infrastructure,” the company said in a post on LinkedIn.
“With a projected economic impact of $2 billion in the area over the next decade, we’re committed to the growth and sustainability of the region,” the Charlotte, N.C.-based steelmaker added.
Also present were North Carolina Gov. Roy Cooper, Congressman Dan Bishop (R., N.C.), and Davidson county commissioner Todd Yates.
The Nucor Steel Lexington mill is expected to cost ~$350 million and have an annual capacity of 430,000 tons of rebar, employing ~200 full-time workers, the company said in an earlier press release from 2022.
If you attended our Steel Summit 2023 this year, you had the privilege to watch all of our knowledgeable speakers present live. Did you scramble to keep time with the message and the slides? Have no fear – all speaker presentations (PowerPoints and all!) are now available on the SMU App! Follow these steps to cross-check your notes and relive your favorite moments from Steel Summit 2023.
To browse the presentations:
To watch speaker recordings:
Leading voices in the US scrap industry discussed the current outlook and future challenges at Steel Summit 2023’s panel on Scrap and Metallics: Navigating the Boom in EAF Sheet Production.
Joseph Pickard, chief economist and director of commodities at the Institute of Scrap Recycling Industries (ISRI); Stephen Miller, Raw Materials Trader, Steelinvest Ltd, London; and Ben Abrams, president and CEO of Consolidated Scrap Resources, sat down with Lynn Lupori, head of consulting – Americas at CRU, to examine the landscape.
Miller noted that the war in Ukraine has impacted the flow of material, especially with pig iron. He said that 60-65% of material was from Ukraine, and now we’ve turned to Brazil, “but prices went up.”
Pickard said that the lack of Russian and Ukrainian material was supportive of boosting prices, but there are plenty of challenges on the domestic front to mitigate that. He cited the slowdown in US manufacturing over the last six or seven months, labor and hiring problems, rising interest rates, and transportation issues.
Abrams pointed out that “rail car shipping costs have really ballooned in the last two to three years.”
“Scrap flows are challenged,” Abrams said. “They are not as healthy as they were a year or two ago.”
He noted that, in opposition to the recovery from other downturns, “the price level scrap is stabilizing at is higher than in previous cycles.”
The reason behind this is in the name of the panel. “We need higher levels of scrap to feed the EAF production that has come online,” Abrams said.
“We’re going to have to use more pig iron and DRI (direct-reduced iron) for this added EAF production expansion,” Miller chimed in. “The expansion of prime scrap generation is not going to be there.”
He said that despite what steel mills say about scrap availability, “it’s not going to be a walk in the park.”
However, the panelists countered that although a challenge, it’s one the US scrap industry has the ability to face.
Despite other issues on the horizon such as regulatory challenges and the impact from possible trade restrictions, Pickard said “recycling is incredibly resilient to changing market conditions.”
“Scrap becomes available as the market dictates,” he added, noting that he believes market conditions will tighten going forward.
Pickard said the overall outlook, both domestically and globally, is about sustainable production, and “scrap is a huge part of that solution.”
Miller said the US scrap industry is “extremely efficient,” and “has always found a way to make material available no matter what the mills wanted to pay.”
“We’ve never run out of scrap,” Miller added. “It’s a function of price.”
Correction: An earlier version of this article erroneously listed Stephen Miller’s title and organization. The correct title and organization are Raw Materials Trader, Steelinvest Ltd, London.
U.S. Steel’s ‘strategic alternatives’ process is continuing. This week the Pittsburgh-based steelmaker confirmed to shareholders that it has entered into nondisclosure agreements (NDAs) and has begun due diligence on a potential sale.
In a letter to shareholders dated Aug. 29, U.S. Steel said it has entered “into customary confidentiality agreements with numerous third parties.”
Additionally, it has begun “to share due diligence information under” the agreements.
“We are highly focused on running a fair and competitive process to maximize shareholder value and mitigate transaction execution risk,” said the letter signed by U.S. Steel’s president and CEO David Burritt and board chair David Sutherland.
The letter said they “don’t know how long the process will take” but they are “moving quickly to complete it.”
And “while some companies undertake this kind of review privately, we chose to make it public to ensure that the process is as robust as possible and the board hears all options, from any party that may have an interest in our company,” it said.
The full letter can be read on U.S. Steel’s website.
The only public offer still on the table is one from Cleveland-Cliffs, which offered to buy the entirety of U.S. Steel for $35 per share. Cliffs’ bid has the full backing of the United Steelworkers (USW) union.
Michigan-based distributor Mill Steel is growing its presence in Ohio.
The company announced on Tuesday its purchase of a 90,000-square-foot facility in Mansfield, Ohio. The new facility is in close proximity to Cleveland-Cliffs’ Mansfield Works. It will support business from Mill Steel’s acquisition of Cleveland Metal Exchange that took place earlier this year.
“The proximity to our customer base and geographic benefits made this an excellent
opportunity. I look forward to the additional capacity this provides to support our double-digit
growth,” Pam Heglund, CEO of Mill Steel, said in a statement.
The new facility is equipped with a 72” Pro Eco Slitting Line, a 60” Paxson Slitting Line, and
a 50-foot-deep looping pit.
The company also has plans to add cut-to-length processing capabilities.
Additionally, Mill Steel said it is making an $18-million investment into its Detroit location.
The upgrades include a new slitting line, new pack line, two new cranes, and 50,000 square feet of warehouse space. The updates are set to be complete sometime in 2024, the company said.
US raw steel production dropped back down after the previous week’s increase, according to data released by the American Iron and Steel Institute (AISI) on Monday, Aug. 28.
Steel produced in the US fell to 1,733,000 tons for the week ended Aug. 26, down 1.3% from 1,756,000 tons the previous week. Production is 0.8% higher than it was in the same period one year ago when domestic output was 1,719,000 tons.
The mill capability utilization rate for the week was 76.2%, down from 77.2% the week prior. Utilization was also down from one year ago when the utilization rate stood at 78%.
Adjusted year-to-date production through Aug. 26 was 58,096,000 tons with a capability utilization rate of 75.9%. That is down 1.9% from the 59,239,000 tons during the same time frame last year, when the capability utilization rate was 79.7%, AISI said.
Production by region for the week ending Aug. 26 is below. (Note: Changes from the prior week are in parentheses.)
United Auto Workers (UAW) union represented employees at battery cell maker Ultium Cells in Lordstown, Ohio, ratified an interim labor agreement over the weekend.
The UAW said the workers voted 895 to 22 to approve the agreement that will see their wages raised $3 to $4 an hour, “and provides thousands of dollars in back pay for hundreds of workers.”
The deal, announced on Aug. 24, comes after months of negotiations. The UAW said talks will continue for a complete first contract between its bargaining committee and Ultium, a joint venture between General Motors and LG Energy Solution.
“This agreement is an important step forward, but it’s only the first step,” Shawn Fain, UAW president, said in a statement on Sunday. “We will keep fighting at Ultium and all EV plants to win the same strong pay and safety standards that generations of autoworkers have won at GM, Ford, and Stellantis.”
The union said Ultium Cells produces battery cells for GM’s growing electric vehicle fleet and is expected to qualify for more than $1 billion a year in federal tax credits when operating at full capacity.
Negotiations remain ongoing between the UAW and the Detroit 3 automakers. The current labor contract expires on Sept. 14 at 11:59 p.m.
I headed back to the Atlanta airport after Steel Summit in 2022 hoping to catch up with a few colleagues and contacts only to learn that Cleveland-Cliffs had just announced a price hike.
So, I set everything aside, opened up my laptop, and filed a short article about the $75-per-ton ($3.75-per-cwt) price increase from a counter in a Hartsfield-Jackson food court.
At Steel Summit this year, there was no such drama after the event. I had a chance to catch up with some of you at the airport or on the flight back to Pittsburgh.
Outside of all the work that goes into a conference the size of Summit, it was a remarkably drama-free week – especially when compared to the frenzy a week before the conference.
Recall that started on Sunday, Aug. 13, when U.S. Steel announced that it was reviewing unsolicited offers for the company. Cleveland-Cliffs very publicly entered the fray. And the rumor mill cranked up on speculation as to whether there would or wouldn’t be a deal as well as what any transaction might look like.
One reason why there was no post-Summit increase this year should be obvious. It’s the shadow that’s been hanging over the industry all summer. Namely, the expiration of the current UAW labor contract with Ford, General Motors, and Stellantis on Thursday, Sept. 14, at 11:59 pm ET.
As we’ve noted before, a significant number of buyers have moved to the sidelines, or are buying only as needed, because of the uncertainty around whether there will be a strike, and, if there should be one, how long it might last. We’ve seen that reflected in our survey data as well. (See slide 22 in the Aug. 18 survey.)
Also, a snap poll at the outset of Steel Summit revealed that 67% of people in the room on the first day of the event thought a strike would happen. To be clear, many think that a strike will be short.
That might explain why our current sentiment index fell even as future sentiment rose – something we don’t typically see. Maybe respondents to our survey think that prices will fall ahead of and during any UAW strike and then snap back upward afterward.
We have a rough precedent for that in 2019, the last time the UAW negotiated a new labor contract.
The union went on strike against General Motors on Sept. 15, 2019. A tentative agreement between the Detroit-based automaker and union negotiators was reached on Oct. 16. Union members ratified the new deal on Oct. 26, marking the official end to the strike.
What happened to steel prices during that time?
SMU’s average hot-rolled coil price stood at $585 per ton on Aug. 27, 2019, according to our interactive pricing tool. It fell ~20% to $470 per ton in October, before the new labor contract was ratified.
After GM and the UAW deal ratified a new deal, price rose steadily through the rest of the year – reaching $610 per ton in early 2020, a ~30% increase.
History rarely repeats. But it sometimes rhymes. So, let’s say we saw exactly the same thing happen this time around.
SMU’s average HRC price stands at $750 per ton now, a 20% decrease would take us to $600 per ton.
That number is below anything we’ve seen to date. That said, we’ve heard that bigger deals (think 5,000-10,000 tons or more) are in the mid/high $600s per ton from certain mills more exposed to union-represented automakers.
Let’s say, for the sake of argument, we saw prices fall to $600 per ton. A 30% post-strike rebound would put us at $780 per ton. In other words, it might be a lot of volatility. But this industry has more than a little experience with that kind of chaos, especially after the events of the last three years, and could probably navigate it once again.
Sorry, I’m not going to go there. The future is unwritten. And I’m not going to trot out the Magic 8 Ball again.
Could we see some heated rhetoric from the UAW ahead of and around Labor Day? You can count on it.
The UAW is already rallying the rank-and-file with Eminem’s “Not Afraid” at rallies, according to the Detroit Free-Press. I wouldn’t expect them to back down unless there are significant improvements to their contract, even if it’s not everything they asked for.
In the end, let’s hope that both sides can come to an agreement and avoid a lengthy strike that probably wouldn’t benefit anyone.
I’ve just returned from the SMU Steel Summit in Atlanta. I was privileged to participate in that conference for the ninth straight year.
I spoke in a panel on steel decarbonization efforts, along with my colleagues Phil Bell, president of the Steel Manufacturers Association, Kevin Dempsey, president of the American Iron and Steel Institute and Jerry Richardson, president of CSN. I took the stage as an attorney representing US manufacturers that use steel and the traders that supply about one-fourth of the steel used in this country.
My readout is that, as the Oct. 31 deadline approaches to reach an agreement on steel matters, the US and EU are headed for an impasse. Just last week, US Trade Representative Katherine Tai and Executive Vice President Valdis Dombrovskismet during the G20 meeting of trade and investment ministers in Jaipur, India. Reports on the meeting are not especially optimistic. An agreement by October will require compromise.
Because steel is one of the leading sources of carbon emissions in the industrial sector, steel plays a prominent role in climate change initiatives. And, as I’ve noted before, the chief culprit in steel carbon emissions is basic oxygen furnace (BOF) steelmaking. BOF mills predominate worldwide; the reason the US emits less carbon per ton is that electric arc furnace (EAF) steel mills are much more numerous in this country.
The United States leads the world in EAF-making steel production. Estimates I’ve seen suggest that BOF production emits almost two tons of carbon into the air, while EAF production emits about 0.6 tons of carbon per ton of steel produced, meaning EAF production releases one-third of the carbon as BOF production.
Other major steel-producing countries have a much lower percentage of EAF production than the US. The carbon emissions will vary from plant to plant, but assuming that the ratio of carbon emissions is constant (about six to one), the easiest way to reduce carbon emissions is to reduce BOF production in favor of EAF. But the US, attuned to political reality, has not mentioned this option about cutting carbon emissions here.
As I’ve written before, the US and the EU have different approaches to decarbonizing steel production. The US proposal is to set a benchmark for “clean” steel and impose tariffs on imports of steel that exceed that threshold. We don’t know what that threshold is, but let’s assume for purposes of discussion that it is the EAF emission number, about 0.6 tons of carbon emissions.
The EU, by contrast, wants to put a “price on carbon.” That means that the value of carbon emissions will factor into the market price of steel, whether that steel is imported or domestically produced. Countries that put a price on carbon emissions through taxation or a “cap and trade” system would be exempt from the “carbon border adjustment mechanism” (CBAM). But those countries that do not put a price on carbon will have to pay at the EU border.
The US proposition would essentially let US producers off the hook of having to reduce their carbon footprint, whether they are BOF or EAF producers. Unlike foreign steel producers, US BOF producers would exist under the protective umbrella of tariffs, but the US producers would not have to pay tariffs.
The EU approach, which is hardly perfect, would at least require companies to reduce carbon emissions to save on paying for the right to pollute. The EU has a much lower rate of EAF production than the US, so some European producers would have a long way to go to meet the emission targets. But some European producers are already taking steps to reduce emissions substantially. For example, Thyssenkrupp, Germany’s largest steel producer, has set ambitious targets for emission reduction for Scope 1 (direct emissions from steel production) and Scope 2 (emissions from production of purchased energy).
The proposals on both sides are peppered with self-interest, as most diplomatic initiatives are. The US proposal requires little direct action to reduce emissions, although the EAF portion of the domestic steel industry is taking concrete steps to locate production where it can obtain the cleanest possible electricity. The BOF sector can’t relocate very easily, because no new BOF facilities have been built in 60 years. (Improving the efficiency of the electric grid is a major project that has languished in the last few decades—new transmission lines and transformers need to be put in place as soon as possible to help all Americans reduce their carbon footprints.)
The differences between the US and EU proposals to address cleaner steel production are significant—but there should be (and are) ways to give room for both proposals, as well as suggestions from other countries (Japan, Korea, Mexico, for example) to participate.
If we are serious as a country and as an international community to address climate change, a global solution is mandatory. No country can succeed in reducing its own carbon emissions if the rest of the world does not go along. If sacrifices are necessary, we all must share in them.
As President John F. Kennedy said, “We all breathe the same air.” Given that reality, one country cannot change the world alone, not even the United States. We must find a way to move forward together.
At the moment, that seems a distant dream.
Lewis Leibowitz
The Law Office of Lewis E. Leibowitz
5335 Wisconsin Avenue, N.W., Suite 440
Washington, D.C. 20015
P: (202) 617-2675
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lewis.leibowitz@lellawoffice.com
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.
Many economists warned of a recession in early 2023, but it wasn’t on the radar for ITR Economics.
Alan Beaulieu, president of ITR Economics, joined us again at Steel Summit to talk about what is on the horizon for 2024.
“The US industrial production and global production have a very synchronous relationship,” said Beaulieu. “The 12-month rate of change is going to feel some downward pressure in 2024.”
Iron and steel product production is expected to descend to a third-quarter low in 2024 but inch back up in 2025, Beaulieu stated.
“China is becoming more of a problem going forward with mounting risks,” said Beaulieu. As geopolitical risk increases for supply chains and weighs heavier on people’s minds, there has been a movement away from China.
Beaulieu noted that the US’s largest trading partner is now the European Union. And as the US bond with the EU gets tighter, its bond with China gets weaker. Additionally, China is experiencing a decrease in its labor participation rate.
“With a lack of labor comes a lack of taxes,” said Beaulieu. “Machines don’t pay taxes. And with China’s aging population, it’s a problem.”
The forecast for the US economy is expected to be relatively flat for 2024. However, industrial production is expected to see a mild recession. “The 12-month rate of change is going down. There’s downside business cycle pressure that will see a low in late 2024,” he noted. “But you’re going to like 2025, 2026, 2027, 2028, and 2029.”
Unfortunately, if industrial production declines due to interest rates, steel production will decline. “There will likely be more banks failing in 2024,” said Beaulieu. “There will be more pressure on weak businesses and people who don’t have a lot of money.”
Beaulieu pointed out that we are currently in a disinflation for the overall economy. Energy prices are lower than they were one year ago and that is bringing inflation down. However, Beaulieu expects that inflation will be with us for the rest of the decade, at an on-again-off-again capacity.
Looking ahead, Beaulieu says, “Expect a macro recession to begin in the second half of 2023 and extend through 2024, housing will be in recovery in 2024, and commercial construction will peak in the third quarter of 2024.”
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President and CEO of Ternium Mexico César Jiménez discussed positive demand trends and challenges in the Mexico market with SMU managing editor Michael Cowden during a fireside chat on Tuesday, Aug. 22 at the SMU Steel Summit in Atlanta.
Ternium Mexico is well positioned to take advantage of the reshoring trend positively affecting the North American market, Jiménez said.
Additionally, demand is healthy in Mexico in the industrial and HVAC sectors. While there are not a lot of government infrastructure projects like there are in the US, construction demand remains stable. Renewable wind and solar projects and the automotive industry’s switch from combustion to electric motors are other areas that will bring more steel consumption, he said.
Two big challenges the Mexican market is facing are in logistics and energy.
On the logistics side, the country needs more trucks and trains, according to Jiménez.
The other challenge, he said, is the transmission and distribution of electricity. The good news is that “the Mexican government is realizing energy is critical for the future” and is changing investment plans, adding more renewable energy projects, and increasing capacity overall, he explained.
When asked if the steelmaker is interested in moving into downstream or adjacent markets, like some other American steel companies are, he said, “Never say never.”
For now, however, Ternium is focused on growing in the markets it already serves, but it does have lots of projects and ideas on both the flats and longs steel markets. “We have not run out of ideas to continue investing in our economies,” he said. “For the moment, we’ll continue to roll in the same markets.”
The shortage of capacity for making electrical steels in the US was brought up several times at Steel Summit. Jimenez said Ternium “will always try to follow what the market” needs. “There is a good case for ‘why not?’” he said on the possibility of adding that product to the company’s product mix.
Considering the current absence of competitor AHMSA from the market, Ternium did its “capacity expansion at the right time so we can serve the needs” of the market now, he commented.
That expansion is Ternium’s newest steelmaking complex in Pesquería, in the Mexican state of Nuevo León. The new hot strip mill there has been running at full capacity, he said.
There are currently five different projects going on there. A new, 550,000-metric-tons-per-year pickle & oil line will be ready next year, as will new finishing lines. A new pickle and cold rolling tandem mill and a new galvanizing line for thick material will start in 2025. A $2.2 billion EAF/DRI melt shop will be ready in the middle of 2026. Once complete, it will be the most modern slab mill in the Americas.
Jiménez also talked about Ternium’s increased stake in in Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) and the company’s slab strategy.
In Mexico, Ternium’s main market, the company operates three hot rolling mills, two of which are slab based, with a combined total capacity of 7.5 million metric tons per year.
The new slab mill in Pesquería, once complete, will be able to produce 2.6 million metric tons of slabs annually. Thus Ternium’s Mexican mills, at full capacity, will still require almost 5 million metric tons of slab per year.
Ternium Brazil will be providing slabs to both Usiminas and Ternium Mexico, and thus Ternium will still have to buy some slabs from the market for rolling in Mexico, Jiménez explained.
Join the steel community again at the Tampa Steel Conference on January 28-30 to hear more from industry executives.
Steel Summit’s trade panel opened the conversation around the ongoing negotiations between the US and EU, decarbonization, and trade.
The panel consisted of the president of the Steel Manufacturers Association (SMA), Philip K. Bell; president of the American Iron and Steel Institute (AISI), Kevin Dempsey; trade attorney Lewis Leibowitz; and CSN’s executive director Jerry Richardson.
“Decarbonization has become a critical issue for the industry,” said Dempsey. “Traditionally at this conference, trade has been a big issue, and continues to be. Now, in addition to trade, we have the issue of decarbonization.”
The US is the lowest emission steel producer because our efficiency has led us there, rather than a government mandate, Dempsey added.
When asked what the outcome would be on the global arrangement on steel and aluminum between the US and EU by October, the panelists agreed that the US would likely not adopt a carbon credit program like that of the EU.
“Progress just isn’t being made at the office of the United States Trade Representative and the Commerce Department. I think it is due in large part to the fact that the EU is relying too heavily on their CBAM,” said Bell. Part of the EU CBAM policy (carbon border adjustment mechanism) is that you have to agree to it and must have something similar in your country to be a part of it, he continued.
“There won’t be a final agreement by October. I think that’s impossible,” said Leibowitz.
Leibowitz suggested that narrowing the differences and accommodating both systems, then subsequently using the International Trade Commission (ITC) study into greenhouse-gas emissions intensity to make a decision would be a favorable approach.
While we’ve seen the implementation of trade tariffs like Section 232 and antidumping and countervailing duties (ADD/CVD), panelists were asked about the likelihood of an additional tax.
There’s not as much steel exposed to Section 232 as you would think, said Richardson. It’s estimated that about 20-30% of steel is subject to Section 232 tariffs.
Richardson highlighted the necessity of imports, saying the domestic industry does not produce enough to meet demand.
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Three prominent steel analysts proposed their outlooks for next year in the ‘Steel Price Forecast: Boom or Bust in 2024?’ panel at Steel Summit 2023 in Atlanta.
Josh Spoores, principal analyst, steel, at CRU; John Anton, director, S&P Global Market Intelligence; and Timna Tanners, managing director at Wolfe Research, sat down with SMU senior analyst and editor David Schollaert to present their forecasts.
Spoores’ presentation was titled “Post-pandemic Weakness Gives Way to a Strong 2025.”
He said that 2024 might be a “year to forget,” and “2025 might be a better use of our time.”
“We’re probably entering six to 10 months of slower economic industrial activity,” Spoores said, “and that’s going to be hurting demand just as capacity is starting up.”
He said for steel prices, the expectation is for them to come down, which would be for the third consecutive year. However, he said, “We should have some pretty strong prices in 2025.”
Here is his price forecast:
Anton’s outlook was from a steel buyer’s point of view for 2024. For sheet prices, he said they are too high in the US, but they don’t have far to go. “Sheet is boring, which is good,” he said.
In his presentation he said a floor for sheet is assumed at $760-780 per net ton, and mills would still be profitable at $720.
He noted that demand will remain weak, so no upside pricing pressure, but mills are maintaining production discipline, so prices are unlikely to fall further.
One caveat he gave is that electrical steel is in short supply and will be a “continuing problem.”
Anton was adamant. He advised to ignore price, and “secure at any cost.”
Tanners began her presentation saying long products may be stronger than sheet going forward.
“The biggest story for the next two years is going to be government spending,” Tanners said. She added that things may be a bit “sad” and “depressing” in the private sector, “but government spending is going to save the day,” or at least offset private sector weakness.
However, she noted that a lot of that spending will be on rebar and plate, and to a lesser extent on structurals.
Tanners said that warehouse spending is down sharply and that makes up 40%+ of nonresidential construction starts in recent years. Also, nonresidential and automotive can be vulnerable to higher interest rates.
For her price forecast, Tanners said, “Sheet shenanigans aside, a good HRC range around $750-800 per short ton.”
She noted that a wild card would be if Cleveland-Cliffs was able to buy U.S. Steel, which would leave the combined company in a “dominant position in at least four markets.”
Still, she said a lot of variables exist. For example, if the Federal Trade Commission gets involved, or if end-customers protest.
Another wild card that could affect forecasts is a potential United Autoworkers (UAW) union strike. The labor contracts for the Detroit 3 automakers expire on Sept. 14 at 11:59 p.m. When asked, all three analysts said they expect a labor action.
“We think there will be a strike,” Tanners said, with just one company, as is usually the case. One of her colleagues thinks it will be Stellantis. Analysts at Wolfe Research have calculated a short strike would have an estimated 90,000-ton-per-month impact on steel.
The US rig count fell for the seventh consecutive week, while Canada’s count moved up, according to the latest data from oilfield services company Baker Hughes.
Total active rigs in the US fell to 632 as of Aug. 25, down by 10 from the previous week.
Oil rigs in the US dropped by eight to 512, while gas rigs decreased by two for a total of 115. Miscellaneous rigs were unchanged at five in the same comparison.
Compared to the same period one year ago, active rigs are down by 133. There are 93 fewer oil rigs and 43 fewer gas rigs from a year earlier, Baker Hughes said. However, miscellaneous rigs are up by three.
Active rigs in Canada are up by one to 190.
Canadian oil rigs are down by three to 116, but gas rigs are up by four to 74.
Working rigs in Canada are down by 11 from the same period one year ago. There are 20 fewer oil rigs, but nine more gas rigs.
The international rig count is down by six from June to 961 rigs in July, but is up by 128 rigs from July 2022, Baker Hughes said.
The number of oil and gas rigs in operation is important to the steel industry as it is a leading indicator of demand for oil country tubular goods (OCTG), a key end-market for steel sheet.
A rotary rig is one that rotates the drill pipe from the surface to either drill a new well or to sidetrack an existing one. Wells are drilled to explore for, develop, and produce oil or natural gas. The Baker Hughes Rotary Rig count includes only those rigs that are significant consumers of oilfield services and supplies.
For a history of both the US and Canadian rig count, visit the Rig Count page on the Steel Market Update website here.
In a fireside chat at SMU’s Steel Summit on Tuesday, Aug. 22, Karla Lewis, president and CEO of service center group Reliance Steel & Aluminum, sat down with SMU managing editor Michael Cowden to talk about current demand trends and where she’s leading her company.
When asked about a possible recession, Lewis said, “We don’t like the R word.” Quoting a former Reliance CEO she said: “We choose not to participate in a recession.”
Lewis said certain “indicators are maybe trying to tell us things aren’t as good as we’re hearing from our companies and customers.”
“We’re still seeing good demand,” she said, although there may be a blip in this second half of the year. She cited healthy demand from buildings, data centers, public works, heavy equipment and agriculture, and general manufacturing.
Demand is also picking up for wind, solar, and bridge infrastructure projects, Lewis said. On the Inflation Reduction Act, she commented that Reliance “saw activity faster than we’ve typically seen from government stimulus,” with renewable energy projects activity beginning in the fourth quarter of 2022.
“We think there’s a lot more to come. We’re very positive that’s a tailwind to help us move forward,” she added.
Organic opportunities and value-added processing have been playing big parts in Reliance’s growth, Lewis said. She mentioned the company’s Acero Prime companies in Mexico as continuing to expand and benefiting from the nearshoring trend.
Reliance has “been at the forefront of industry on our capital spend,” planning to spend $520 million this year across its businesses. That’s a big number for a service center. “There’s a lot going on out there,” she noted.
Although Reliance is the largest North American service center, it’s really a decentralized company with a lot of small companies operating independently, she said. This allows decisions to be made as close to customers as they can be. She said the average order size across the businesses is $3,700.
As for the future of Reliance, Lewis said there is no grand plan to deviate from its current model: It plans to grow its tons shipped, the company, and its people. While it can’t control the cost of materials, it focuses on controlling what it can and how it can best participate in the market.
When asked what keeps her up at night, she said, “We purposely set the company up so we can sleep at night.”
Join SMU for the Tampa Steel Conference in January to hear from other service center and mill executives.
The United Autoworkers (UAW) union said Friday its strike authorization vote passed “with near universal approval” from its members at the Detroit 3 automakers.
UAW president Shawn Fain said the current combined average across the 150,000 union workers at Ford, General Motors (GM), and Stellantis was 97% in favor of authorizing the strike. Final votes were still being tabulated.
“The Big Three have been breaking the bank while we have been breaking our backs,” Fain said in a statement.
UAW said the strike authorization passed at GM by 96%, at Ford by 98%, and at Stellantis by 95%. It specified that the “vote does not guarantee a strike will be called, only that the union has the right to call a strike if the Big Three refuse to reach a fair deal.”
A spokesperson for Stellantis told SMU in an emailed statement that “the discussions between the company and the UAW’s bargaining team continue to be constructive and collaborative.”
The spokesperson noted there was “a focus on reaching a new agreement that balances the concerns of our 43,000 employees with our vision for the future – one that better positions the business to meet the challenges of the US marketplace and secures the future for all of our employees, their families and our company.”
In an emailed statement to SMU, a Ford spokesperson said the company “is proud to build more vehicles in America and employ more UAW-represented hourly workers in America than any other automaker.”
“We look forward to working with the UAW on creative solutions during this time when our dramatically changing industry needs a skilled and competitive workforce more than ever,” the spokesperson added.
A GM spokesperson told SMU, “We continue to work hard with the UAW every day and bargain in good faith to ensure we get this agreement right for our team members, our customers, suppliers, the community and the business.” The spokesperson noted that the automaker posts info/background at www.gmnegotiations2023.com.
UAW said its demands include: 1) the elimination of tiered wages and benefits, 2) wage increases to offset inflation and match the generous salary increases of company executives over the last four years, 3) the re-establishment of cost-of-living allowances and defined benefit pensions and retiree healthcare, 4) the right to strike over plant closures, 5) significant increases to current retiree benefits, and 6) more paid time off to be with family.
The current labor agreement is set to expire on Sept. 14 at 11:59 p.m.
The Mexican government has placed temporary levies of 25% on inward-bound shipments of steel products from countries with which it does not have a free trade agreement.
The steel goods are among the 483, including some aluminum, copper alloys, and nickel products, covered by the duties. Most levies are set at 25%, with some at 5%, 10%, or 15%, and are effective from Aug. 16, 2023, through July 31, 2024.
“With this measure, it is expected to benefit around 206,000 micro-, small- and medium-sized companies, which generate more than one million jobs,” economic minister Raquel Buenrostro Sanchez was quoted as saying in local media.
The economy ministry argues it “has the obligation to implement mechanisms that generate stability in domestic industrial sectors, to eliminate trade imbalance and to safeguard the balance of the global market in accordance with international law and commitments … [The tariffs will] provide certainty and fair market conditions to all vulnerable sectors, allow the national industry to recover and promote its development and support the internal market.”
Steel sector body Canacero said the measure will strengthen national output and help promote the integration of regional value chains, trade, industrialization, and job creation with the US and Canada through the USMCA trade pact.
Mexico’s steel makers expect to invest $4.2 billion in the coming months, following on from around $3.6 billion in the previous three years, in projects that will increase local production and favor substitution of imports.
Other now-protected sectors and goods include clothing, rubber, tires, chemicals, oils, soap, paper, cardboard, ceramics, glass, electrical equipment, and musical instruments.
Mexico has historically relied on imports to supply its domestic steel demand. For steel sheets, last year’s net imports were equivalent to 40% of apparent demand. Looking at import figures from January to May 2023, the main exporters to Mexico were the US, Japan, South Korea, and China, accounting for around 90% of import volumes.
The Mexican government has recently increased steel products import tariffs to 25% for countries without trade deals with Mexico. The temporary levies are effective from Aug. 16, 2023, to July 31, 2025. As the country has trade agreements with the US and Japan, its main trading partners in terms of steel, this increase in tariffs will affect around 30~35% of current import volumes.
AHMSA, the largest integrated steel plant in Mexico, stopped production in December 2022 and still does not have a clear restart date. This has increased the need for imports in the country, which will persist until this mill resumes its production. Therefore, we expect to see an increase in imports from Japan and the US as well as higher prices domestically.
The LME aluminum 3-month price moved higher this week wrapping up the week at $2,170 per ton on Aug. 25. With the price back above a support marker at $2,130 per ton implies an upward trend but noted that late in the week the price could not find support above $2,190 per ton. Range bound for now, the weekly $50 – $100 per ton swings are expected.
The SHFE aluminum price was broadly stable today despite reports of more Chinese stimulus to boost home sales. The cash contract settled at RMB18,625 per ton and last traded at RMB18,675 per ton.
The International Aluminum Association (IAI) released primary production data for July. Total worldwide production on an annualized basis came in at 69 million tons – down just 0.4% from the revised June number of 69.2 million tons (previously 69.3 million tons). Production in World ex. China in July was reported at 28.1 million tons, broadly stable from June.
The IAI revised slightly down their June production estimates for Africa, North America, Asia Ex. China and the GCC by 1,000 tons each. There were also revisions for the GCC in April and May – this time up by 1,000 tons and 2,000 tons respectively.
For Chinese production, the IAI estimated the annualized July output at 40.8 million tons – down marginally from 41 million tons in June. Although the Yunnan restarts are progressing well, the IAI data does not reflect that again this month. As a result, the gap between IAI and CRU is widening with CRU’s estimation for July production now 744,000 tons per year higher than IAI at 41.6 million tons annualized.
The speed of the restarts in Yunnan has exceeded our expectations amid heavy rainfalls in the southwest part of China. In total, that is 2.1 million tons of capacity that has been put online since June, with some of it being new capacity. Indeed, in the previous two rounds of curtailment in September 2022 and February 2023, a total of 1.8 million tons of capacity was shut down, implying around 300,000 tons per year of fresh capacity was added recently. The total operating rate in Yunnan has now reached a record high of 5.6 million tons. Nevertheless, there were some offsetting factors for Chinese production, including lower output in Shandong, some disruptions in Sichuan and Shanxi and the slower ramp-up of Baiyinhua, but not to the extent of taking Chinese production down month-on-month.
Shareholders of the US aluminum product manufacturer, Arconic, last month approved the deal, which gives the company an enterprise value of around $5.2 billion. The deal was finalized on Aug. 18, 2023.
“The closing of this transaction with Apollo Funds brings new perspective combined with deep industry expertise that will benefit our customers, employees, investors and the communities where we operate,” said Arconic’s CEO, Tim Myers.
When the transaction was announced in May, he said the deal would allow the company to pursue its long-term strategic goals, which include:
As a result of the takeover, the company’s shares will no longer trade on the New York Stock Exchange, but it will continue to operate under the Arconic name and brand. Irenic Capital Management will also have a minority stake in Arconic.
The Pittsburgh-based company produces aluminum sheet, plate, extrusions, and architectural products for the ground transportation, aerospace, building, construction, industrial, and packaging sectors. It was formed in 2017 when Alcoa split its downstream product manufacturing operations from the upstream bauxite-alumina-aluminum operations.
Various media reports have noted that researchers in the US have developed a technological innovation capable of removing metallic impurities from recycled aluminum melts. This, in turn, allows the metal to be used for more diverse applications, including electric vehicle manufacturing.
The change is part of a research and development project supported by Remade, a 170-member public-private partnership funded in part by the US Department of Energy. The project named “Selective Recovery of Elements from Molten Aluminum Alloys” is led by Subodh Das, CEO of Phinix – an R&D company specialized in aluminum – who says the research ultimately seeks to develop technologies to improve the quality and increase the usage of recycled aluminum in US manufacturing.
Over the first three months since Flack started contributing a futures column to SMU, the first sentence has started with some version of “What a month!” However, over the past month, the US HRC futures market has witnessed a clear and consistent trajectory. From July 13 to Aug. 3, the front of the HRC futures curve fell over 20%, a downward movement that has continued with momentum this week during the SMU Steel Summit conference in Atlanta.
This decline is primarily attributed to an uncertain physical market, with the market indicating expectations of further decreases into the fourth quarter of 2023. While volume and open interest have remained steady, aligning with levels seen throughout the latter part of 2022, the price trend reflects a gradual decline reminiscent of the previous year.
Open interest, while slightly depressed compared to recent highs, remains robust, and the five-year trend, a signal of increased activity, continues to reach higher highs – adding a layer of stability to the market despite the downward movement. Notably, recent CFTC filings reveal strategic shifts made by speculative money managers. Speculators have closed long positions and increased shorts over the past month, further contributing to the ongoing downward momentum.
As we look at the calendar, it’s important to keep in mind that we’re approaching the contract season. During this time, many participants in the physical market, who use hedging to manage risk, will be locking in prices on the curve. This coincides with the signing of their supply agreements. With that in mind, it is interesting that despite the evident front-end price decline, futures prices for 2024 have demonstrated resilience, maintaining a tight range around $800. This has led the market into contango, remarkably like the curve at the end of 2022, where longer-term prices present a notable increase from the front of the futures curve. The chart below shows today’s settled curve vs. the curve on 10/28/22 in green.
This is largely influenced by higher interest rates driving higher costs to carry inventory. However, it should also be noted that upside risks in related markets are starting to emerge. Examining historical trends, the ferrous complex typically exhibits interconnected dynamics. An intriguing deviation has emerged between HRC futures prices and closely associated European HRC and US Busheling Scrap futures (below).
The decline in US HRC prices highlights the significant impact of fundamental factors, notably the looming threat of auto strikes and the ongoing contraction in manufacturing demand. Looking ahead, a pivotal question arises: What does the near-term of the forward curve already reflect in terms of market expectations, and what are the potential risks on both sides?
Following participation in discussions at the SMU Steel Summit, a prevailing consensus among analysts and attendees suggests that spot prices are likely to continue slipping and could possibly maintain a tight range in the foreseeable future. However, it’s important to exercise caution when considering this as the baseline scenario, given the price volatility over the past three years.
As it currently stands, lead times continue to exhibit unexpected stability despite the rapid decline in prices. This observation strongly implies that buyers lack the necessary inventories to effectively wait out the impending maintenance outages, which are set to diminish available supply until the start of November. Regardless of whether UAW strikes, not all mills are going to be impacted in the same way and today’s spot pricing is already bumping up against some cost support levels.
Furthermore, it’s worth noting that although preliminary, positive signs are emerging in the manufacturing sector. The standout indicator is the Philly Fed Manufacturing Index, historically closely aligned with the ISM Manufacturing PMI. This index has exceeded expectations, solidly marking expansion for the first time since September of last year.
Finally, it’s crucial to acknowledge the presence of downside risks. The unexpected and remarkable economic growth observed in the US, reflected by Quarterly GDP figures of 2% in Q1 and 2.4% in Q2, has been primarily driven by service-side consumption, not manufacturing.
Considering that manufacturing has been undergoing contraction, the potential impact of higher interest rates should not be overlooked. Additional hikes by the Federal Reserve can introduce more restrictive economic conditions, which may further challenge the manufacturing sector. This, in turn, can impose a considerable headwind on steel consumption, potentially imposing a ceiling on any market rally.
Given the confluence of these risks, we strongly recommend implementing hedging strategies to navigate the complexities ahead.
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.
After four months of increases, new orders for durable goods in the US dropped in July.
The US Census Bureau announced on Aug. 24 that following a 4.4% increase in June, orders for manufactured durable goods fell by 5.2%, or by $15.5 billion, to $285.9 billion in July.
When excluding transportation, new orders increased by 0.5%, said the Bureau. Transportation includes non-steel-intensive items such as aircrafts. And excluding defense, new orders fell by 5.4%.
Transportation was the largest contributor to the decrease, dropping 14.3% to $98.7 billion.
New orders for primary metals increased by 0.1% to a seasonally adjusted $26.98 billion in July from June’s $26.94 billion. Fabricated metal products orders rose 0.7% month-on-month from $35.6 billion to $35.9 billion.
Click here for more detail on the July advance report from the US Census Bureau on durable goods manufacturers’ shipments, inventories, and orders. See also Figure 1 below.
