What we’ll talk about

We’ll talk about military tensions on the Red Sea, the drought on the Panama Canal, and the collapse of the Francis Scott Key Bridge in Baltimore – and what it all means for steel and for scrap.

When it comes to the Red Sea and the Suez Canal, will we see vessel traffic around Africa become a more permanent feature of the trade landscape? And will we see ships increase speeds – despite increased carbon emissions – to help make up for the lost time?

As for the drought on the Panama Canal, is that a fleeting issue or could it be a function of climate change and so a longer-term problem?

Early indications are the main impact of the deadly bridge collapse in Baltimore could be on automotive imports and coal exports. To what extent will steel imports and scrap exports be impacted as well?

All told, are these supply chain problems on par with the disruptions we saw coming out of the pandemic or following the start of the war in Ukraine? Or are the current challenges easier for shippers to navigate?

Finally, we’ll talk about inland truck, rail, and barge issues. How are volumes and business there?

We’ll also take your questions, so think of some good ones to bring to the Q&A on April 3.

Why you should listen

Posner is in a good position to address such questions because Mercury Resources specializes in global supply chain management for commodities. The company’s end-to-end solutions include everything from warehousing to ocean freight, as well as inland barge, rail, and trucking services.

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

Editor’s note: If you missed our last Community Chat – a good one with Barry Zekelman, executive chairman and CEO of Zekelman Industries – you can catch a replay here.

If awarded the grant, SSAB would construct a green Hybrit ironmaking facility in Perry County, Miss. The Hydrogen Breakthrough Ironmaking Technology (Hybrit) process uses hydrogen gas to replace coke in the reduction of iron ore resulting in the emission of water rather than carbon dioxide. The plant would therefore produce fossil-fuel-free iron by using green hydrogen instead of fossil fuels.

The only other facility currently using Hybrit technology is SSAB’s plant in Luleå, Sweden. LKAB, SSAB’s Hybrit partner, “is planning to build an industrial-scale Hybrit plant in Gällivare in northern Sweden in the coming years,” an SSAB spokeswoman told SMU in an email.

The spokeswoman said the company is “now entering negotiations with funding officials to develop a shared understanding of the scope of the project, the budget, and additional requirements.” She said additional details on the plant’s specifics will be available once the negotiations are underway.

“This is a funding application to examine a possible solution for decarbonization acceleration. We are now entering a phase of deepened investigations of what makes sense commercially, technically, and financially, and we will also discuss this with DOE during the awards negotiations,” she explained.

“We are pleased to have our project selected by the DOE for negotiations to accelerate decarbonization of the iron and steel sector,” commented Chuck Schmitt, president of SSAB America, in a statement on Monday.

“We see a great interest in sustainable products from the market, and this project offers a critical opportunity to solidify a first-mover advantage for the US industry,” he added.

Potential expansion at Iowa plate mill

SSAB’s grant proposal also explores the possibility of expanding production capacity at its steelmaking operations in Montpelier, Iowa. This would include the increased use of renewable energy, SSAB said.

While the company is still evaluating its options for the Iowa facility, “Clearly there is a growing demand for heavy plate products coming from the infrastructure, energy, and general manufacturing sectors,” the spokeswoman commented.

She added that additional investments would also be needed to increase the company’s use of Hybrit DRI, recycled scrap, and biofuels in its steelmaking process.

The mill capability utilization rate was 76.7% last week, down from a rate of 77.2% the week prior and down from 76.9% one year ago.

Year-to-date production through March 23 was 20,010,000 st at a capability utilization rate of 76.0%. Annual production is down 2.9% from the same time frame last year, when 20,605,000 st were produced at a capability utilization rate of 77.7%.

Production by region is shown below, with the week-over-week changes shown in parentheses:

• Northeast – 129,000 st (down 5,000 st)
• Great Lakes – 576,000 st (down 4,000 st)
• Midwest – 179,000 st (down 2,000 st)
• South – 757,000 st (down 3,000 st)
• West – 62,000 st (up 3,000 st)

Editor’s note: The raw steel production tonnage provided in this report is estimated. The figures are compiled from weekly production tonnage provided by approximately 50% of the domestic production capacity combined with the most recent monthly production data for the remainder. Therefore, this report should be used primarily to assess production trends. The AISI production report “AIS 7”, published monthly and available by subscription, provides a more detailed summary of steel production based on data supplied by companies representing 75% of U.S. production capacity.

DOE selected six projects in the iron and steel sector to move forward with award negotiations: Two at Cleveland-Cliffs Inc. facilities, and one each at SSAB Americas, Vale USA, AMERICAN Cast Iron Pipe Co., and United States Pipe and Foundry Co.

“Selection for award negotiations is not a commitment by DOE to issue an award or provide funding. Before funding is issued, DOE and the selected applicants will undergo a negotiation process, and DOE may cancel negotiations and rescind the selection for any reason during that time,” DOE noted in a statement.

Secretary of Energy Jennifer M. Granholm announced the funding awards while visiting Cliffs’ Middletown plant.

“Thanks to President Biden’s industrial strategy, DOE is making the largest investment in industrial decarbonization in the history of the United States. These investments will slash emissions from these difficult-to-decarbonize sectors and ensure American businesses and American workers remain at the forefront of the global economy,” Granholm said.

“Spurring on the next generation of decarbonization technologies in key industries like steel, paper, concrete, and glass will keep America the most competitive nation on Earth,” she added.

DOE did not respond to an SMU request for more information on the awards negotiations process.

Decarb awards for iron and steel

Two projects at Cleveland-Cliffs were selected for award negotiations for up to $575 million. With $500 million in DOE funding, Cliffs plans to replace the blast furnace at its Middletown Works in Ohio with direct-reduced iron (DRI) and electric melting furnace (EMF) technology. Another DOE grant of up to $75 million, if awarded, would upgrade and replace slab reheat furnaces at Cliffs’ Butler Works in Pennsylvania.

SSAB’s project, selected for award negotiations for up to $500 million, would see the construction of a HYBRIT manufacturing facility to produce fossil-free iron by using green hydrogen instead of fossil fuels.

Vale USA is planning for low-emissions, cold-agglomerated iron ore briquette production somewhere on the Gulf Coast with a federal government cost share of up to $282.9 million.

Industry applauds awards

Industry associations and unions responded favorably to news of the investment initiatives.

“We welcome investment in the decarbonization of heavy industry,” Philip K. Bell, president of the Steel Manufacturers Association (SMA), said in a statement to SMU.

“SSAB Americas and its fellow SMA members have led the effort to decarbonize the steel industry for decades, and they have invested billions of dollars of their own capital to help make the American steel industry the envy of the world,” Bell added.

The American Iron and Steel Institute (AISI) also applauded the DOE’s industrial decarbonization initiative.

“We are proud that AISI members Cleveland-Cliffs and SSAB Americas were selected today to partner with DOE to continue leading the way with revolutionary technologies,” Washington-based AISI said in a statement on Monday.

“The American steel industry, and the manufacturing sector as a whole, have made significant investments in cleaner and more sustainable production processes. We look forward to working with the administration to implement these and other significant initiatives, enabled by the Bipartisan Infrastructure Law and the Inflation Reduction Act, to strengthen the production and use of clean American steel,” AISI added.

The United Steelworkers (USW) union also supported the announcement of carbon-reducing projects across a handful of critical industries.

“The USW is excited that the Biden administration is making these forward-thinking, transformative investments in our nation’s manufacturing future, and doing so in a way that puts workers, families, and communities first,” the union said in a statement.

“These investments will allow companies to make needed upgrades and reduce pollution while also helping our manufacturing base compete globally,” it added.

“He will be missed by many, in every corner of the steel industry and beyond,” the statement added.

Modrowski spent almost 40 years in the steel industry. Ten of those years were spent with Esmark – as chief operating officer and EVP of Esmark Inc. and president and CEO of Esmark Steel Group.

Esmark also offered its condolences on the passing of a “steel operational mastermind.”

Modrowski “was a close and dear friend to us all,” commented Esmark Inc. founder and chairman James Bouchard in a statement. “It’s been a privilege to know him, not only for his fearless leadership and vision in steel making, but for his compassionate friendship and contagious joy. He will be deeply missed.”

Interim CEO

BMT said current CFO John Krupinski has been named interim CFO and CEO.

Prior to arriving at BMT in 2020, Krupinski, a CPA, served as the CEO and CFO at Jame Roll Form Products, and also held CFO positions at a variety of metals industry companies.

“I am honored to step into the interim CEO role, carry on what Tom Modrowski built, and lead one of the most capable teams in the industry,” Krupinski said in a separate statement dated March 20.

The steel tube maker has eight plants, seven in the US and one in Canada.

If awarded the DOE funding, Cliffs will build a 2.5-million-ton-per-year hydrogen-ready DRI plant and two 120 MW EMFs, it said in a statement on Monday.

Cliffs said the Middletown mill’s existing annual raw steel production capacity of about 3 million short tons would be maintained with the upgrades, noting that the site will no longer use coke for its iron production.

As the DRI plant can use standard, blast-furnace grade pellets, which will reduce the amount of prime scrap required for the steelmaking, Cliffs said it will be able to maintain the quality of the steel produced and sustain its position as a major supplier to the automotive market.

Additionally, the facility overhaul will allow for the plant to be fueled by natural gas, a mix of natural gas and clean hydrogen, or clean hydrogen, Cliffs said. Depending on the process, this will reduce the current iron-making carbon intensity by 50-90%, or even more.

EMF technology is “somewhat exotic,” CRU principal consultant Brian Schwadron told SMU.

“Cliffs’ EMF terminology is likely what is known as a submerged arc furnace (SAF). Although SAFs have not previously been used in the production of carbon steel, SAFs have been used for many years in the production of ferroalloys,” Schwadron explained.

“ThyssenKrupp has announced that they will be implementing this exact technology in their European plants starting in 2025, and several other companies are known to be considering the same. Cliffs is the first producer in North America to announce a transition to this technology,” Schwadron added.

Cliffs anticipates its net capital outlay from the DRI/EMF project to be “approximately $1.3 billion, net of capital avoidance on the existing blast furnace and coke plants” from 2025 through 2029.

Upon completion of the project, the No. 3 BF at Middletown Works will be demolished, a spokeswoman for Cliffs told SMU. She said this will be a multiyear project and is unable to provide an exact time frame at this time.

Butler Works electrical steel project

The DOE also selected another Cliffs project for funding award negotiations.

Selected to receive a grant of up to $75 million to assist with the production of electrical steels was the company’s Butler Works in Pennsylvania. The selected project would replace two existing natural-gas fired high-temperature slab reheat furnaces with four electrified induction slab reheat furnaces.

The project “plans to electrify the only production facility for high-silicon grain oriented electrical steel (GOES) in the US,” according to a DOE summary of the project.

Cliffs said its net cost for the Butler Works project would be approximately $100 million over four years.

Editor’s note: This article has been corrected from its original posting. Cleveland-Cliffs is not planning to install any electric-arc furances (EAFs) at its Middletown Works.

The company noted that the outage “reduced production by 120,000 to 150,000 net tons, significantly impacting adjusted Ebitda performance in the quarter.”

Recall that repairs were needed after an unplanned outage on Jan. 20 at its blast furnace. This was related to a utility corridor collapse at its coke-making facility. Production resumed on Feb. 11.  

“We expect to close out our fiscal year on a high note, with steel production back to normal levels and our end markets looking strong,” Michael Garcia, Algoma’s CEO, said in a statement.

He praised the restart efforts of the Algoma team. Garcia said those efforts allowed the company “to capture attractive pricing in our order book that partially offset the effect of impacted shipments in the fiscal fourth quarter.”

Garcia commented that demand for Algoma’s products remains strong, and market prices for hot-rolled coil have been rising.

“With a return to full production, we expect an improvement in our fiscal first-quarter results,” he said.

EAF update

Garcia also provided an update on the company’s switch from an integrated to EAF steelmaker.

“Importantly, our electric-arc furnace project remains on schedule and within budget, with commissioning activities expected to start by the end of 2024,” he said.

“We have continued to secure contracts to advance the EAF project, which now totals approximately (CAD)$788 million, most of which are on fixed-price terms, reducing budget risks,” Garcia added.

In a recent SMU Community Chat, Worthington Steel president and CEO Geoff Gilmore joked that talking about politics, he would be offending 50% of people no matter what he said. However, whatever your political persuasion, the decisions being made in this election year are going to have ramifications for steel. (In a separate column this week, AISI outlines some potential new legislation coming down the pike that could impact steel.)

One expects politicians to make lofty promises in an election year. However, some of the things being thrown around could have an effect much sooner, and are much more concrete. Here are a couple of items ripped from the headlines.

Tougher air standards, more EVs

Do you have range anxiety? Charge anxiety? Is something holding you back from buying an electric vehicle? Well, soon there might just be something pushing you forward.  

On Wednesday, the US Environmental Protection Agency (EPA) announced the “strongest-ever pollution standards for cars,” which start for model years 2027 through 2032 and beyond.” Note that 2027 is closer than 2020 is distant.

Backed by the Biden administration, EPA says the standards will reduce “7 billion tons of carbon emissions and provide nearly $100 billion of annual net benefits to society.” Additionally, it will accelerate “the adoption of cleaner vehicle technologies.”

The new rule aims to make EVs account for 35% to 56% of new car sales in 2032, and for 13% to 36% to be plug-in hybrids, according to an article in CNN.

Of course, such a bold goal has implications for the auto industry directly and the power grid indirectly, both of which are steel intensive.

Mexico, USW endorsement

Two items that we’ve already covered may seem to indicate a trend.

First, the “Stop Mexico’s Steel Surge Act” introduced into Congress that targets Mexican steel imports to the US. It looks to reimpose Section 232 tariffs because imports are said to be surging – even if the data are somewhat mixed there depending on the product.

Next is Biden’s re-election endorsement by the United Steelworkers (USW) union on Wednesday. USW has been vocal in its opposition to Nippon Steel’s proposed buy of U.S. Steel. Recall that Biden came out against the deal on March 14. Of course it’s a logical fallacy to conclude that because one thing follows another that they are in any way related…

It also happens that Trump, too, has come out against the acquisition. And that the USW is influential in swing states that could determine our next president.

Will this start an arms race between the two candidates to court Rust Belt voters, and domestic industry and union voters in general? The United Auto Workers (UAW) has already endorsed Biden. Recall that Biden stood with UAW workers on the picket line last fall. And UAW President Shawn Fain got a shoutout from Biden at the State of the Union address earlier this month.

Regardless of whether this trend of courting domestic steel and union votes continues, the review process for Nippon isn’t a “by the end of the decade timeline” that gives a lot of room to kick the can. Is there a way to backtrack, or is the course for both candidates set? And, obviously, the outcome of the U.S. Steel deal will have enormous ramifications for the steel industry. It could serve as either a warning or a welcome to foreign suitors. We’ll sit back and see what happens.

I’d be rich(ish) if I had a nickel for every time I’ve heard since 2020 that we live in interesting times. And I have a feeling they’re about to get a whole lot more interesting.

On a daily basis, production averaged 2.8 million mt per day in February, unchanged from January. Daily production was marginally higher the same month one year ago at 2.804 million mt. Recall that this daily rate had reached a near seven-year low back in December of 2.174 million mt.

Regional breakdown

China, the world’s top steel maker, produced 81.2 million mt in February. Despite the 6.5% decrease m/m, China’s production was up 3.4% year on year (y/y). February’s output was the fourth-lowest monthly rate seen over the past year. Chinese production represented 54.6% of the world’s total output in February, down from 54.9% in January and 54.7% in February 2023.

Meanwhile, steel output in the rest of the world (row) also eased 5.1% month on month (m/m). Production in these regions totaled 67.6 million in February, up 3.8% y/y.

Looking at production by country, Indian mills held the number two spot in February, producing 11.8 million mt of steel. Next up was Japan at 7.0 million mt, followed by the US, Russia, and South Korea, all in the 5-6 million mt range.

Emirates Global Aluminium of the UAE has signed a binding agreement to purchase 100% of German aluminum recycling company Leichtmetall.

As well as recycling, Leichtmetall is a specialty foundry that produces up to 80,000 mt of billets each year, using around 80% recycled aluminum. Powered by renewable energy, the company employs proprietary inductive melting technology, liquid metal treatment and casting processes to make high-specification products. The main category is hard alloy billets up to 1,150 mm in diameter, used in high load-bearing extruded profiles and very large forged components.

Vista Metals announces new US plant for aerospace applications

US specialty aluminum products manufacturer, Vista Metals, announced an investment in a new location to serve the aerospace industry. The new facility, located in Bowling Green, Ky., is part of Vista Metals’ long-range investment plan, and will expand upon the company’s existing capabilities in California and Georgia. It will also follow the planned completion of the company’s seventh aerospace casthouse in Georgia this spring.

With an initial investment of nearly $60 million, the new site will primarily support downstream processing and value-added products serving the aerospace extrusion, forging and rolling markets. In addition to supporting commercial aviation, the new location will also support defense, automotive, and general industrial applications. Initial site preparation is now underway, and Vista Metals will commence a phased build-out to support the growth in its core markets.

Hydro enters into multi-year scrap purchase agreement with Sims Alumisource

Hydro has entered into a multi-year agreement with Sims Alumisource to purchase processed aluminum scrap for its North American extrusion business. Hydro operates 12 recycling facilities in the US and Canada. Together with Sims Alumisource, the facilities have worked together to refine the processing of post-consumer aluminum scrap into furnace for extrusion billet casting. Through this new agreement, the Hydro Extrusions business unit in North America will gain access to roughly 36,000 mt of additional post-consumer aluminum scrap.

New secondary billet facility to be built in the US

According to a recent press release, US remelter Adaptiq will soon begin construction of a 140,000 mt/y “green” aluminum billet facility. The plant will be based near Cincinnati, Ohio, with full production expected to be reached by Q4’25. PerenniAL Group will have the off-take agreement.

“Adaptiq is stepping up to meet the true demand for alternatives in the remelt billet market. As a 100% US owned and operated independent company, we plan to offer some of the greenest, world class quality billet and scrap handling options through our remelt billet cast house,” said a statement by company founder Brian Hesse on LinkedIn.

Ball announces installation of new sorting machine at Copper Mountain Resort

Ball Corp., Copper Mountain Resort, and the POWDR Adventure Lifestyle Corp. announced the installation of a reverse vending machine (RVM) at Jack’s Slopeside Grill in Frisco, Colo., to increase aluminum recycling in the mountain town. The machine was installed in February 2024 and will be available for the duration of the season through April 2024.

Ball Corp. worked with recycling data collection provider Recycle Track Systems to install the machine. The aim of the project is to incentivize increased recycling rates at one of the most popular ski resorts in Colorado and educate consumers about the benefits of using aluminum. Guests can insert their Ball Aluminum Cup® can or aluminum bottle into the front of the machine, which then uses a conveyor belt to scan, crush and sort the aluminum packaging.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

The number of active drilling rigs in the US decreased by five from the week prior to 624. Oil rigs fell by one to 509, gas rigs decreased by four to 112, and miscellaneous rigs held steady at three.

In the week ended March 22, there were 134 fewer active US rigs compared to the same week last year. In this time oil rig counts have fallen by 84 and gas rigs by 50, while miscellaneous rigs are unchanged.

Canadian rigs

The number of operating oil and gas rigs in Canada declined by 38 to 169 this week. Canadian drilling experiences these seasonal declines every spring as warmer weather sets in and thawing ground conditions limit access to roads and sites. Oil rigs fell by 37 to 91 this week, while gas rigs declined by one to 78.

Drilling levels in Canada are up by four rigs compared to this time last year. The number of active oil rigs is up by five, and gas rigs are down by one.

International rig count

The international rig count is updated monthly. The total number of active rigs for the month of February was 958, down seven from January, but up 43 from February 2023.

The Baker Hughes rig count is important to the steel industry because it 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. For a history of the US and Canadian rig counts, visit the rig count page on our website.

Recall that Worthington Steel recently completed its first quarter as a standalone company after completing its planned spinoff from Worthington Industries in December.

Expansion projects

Worthington Steel spent $22.4 million on capital expenditure projects in the quarter ended Feb. 29, VP and CFO Tim Adams said on the call. That total includes previously announced expansions in Mexico and Canada at Tempel Steel facilities acquired in 2021.

Tempel is a manufacturer of precision motor and transformer laminations for the electrical steel market.

The Tempel expansion project in Apodaca, Mexico, is on time and on budget, EVP and COO Jeff Klingler said, noting that about $17 million has already been spent there.

“The building expansion really should be complete here by late spring or early summer. And we’ll be installing the first presses here in just the next couple of months,” he commented.

Once the expansion is completed, the Apodaca site will be Tempel’s largest production site for motor and transformer laminations for the EV market.

Worthington has so far invested about $5 million in the expansion project in Canada. According to Klingler, spending there will ramp up over the next few quarters. Production is not expected to begin until the end of 2025.

Tempel Steel’s only location in Canada is in Burlington, Ontario, according to Worthington’s website.

With a transformer backlog of two years or more, president and CEO Geoff Gilmore said Worthington is “still quite bullish on that market.” He believes the transformer market “will grow much faster than GDP over the next seven to 10 years.” That’s a “big driver of why we’re making that expansion in Canada,” he added.

Revenues from the expansion projects in Mexico and Canada are expected to be $80 million+ at each facility, once they are fully ramped up, Klingler said.

While there may be some bumps in the road in the EV market, Gilmore noted that, “It’s a supply chain that needs to be built out, but that’s going to happen, and costs will come down.”

He said a lot of automotive companies want to add more hybrid vehicles to their portfolios. He also noted that ICE and hybrids require cold-rolled strip, and BEVs and electrification, in general, need electrical steel laminations.

“My point in sharing that is, I don’t know that there’s anybody else globally that’s better positioned to take advantage of that,” Gilmore stated.

Pause on M&A

“We are continuing to look at M&A opportunities. We haven’t really stopped,” Gilmore said on the call, noting the company’s focus on the previously discussed big growth capex projects.

“We’re pretty selective in who we want to buy … We’re looking for high value-added companies that we can bolt on and complement what we have or enter new niches,” he noted.

“So we’re not out of M&A. We’ve just paused a little bit to get through the spin, and we’ll crank that effort up and continue to look for companies that match us from a culture standpoint and match us from a high-value-add standpoint,” he added.

Don’t miss the opportunity to hear from Worthington Steel’s leader Geoff Gilmore at this year’s Steel Summit in August in Atlanta!

The next availability from Brazil is now reportedly for June shipment. It is unclear at this point if Ukraine will continue to ship pig iron to the US. Producers in that region have cited increased logistical costs due to the conflict there. They are considering using their iron production to convert into billets, which may be more profitable. If this happens, Brazil will become the only supplier to the US, unless pig iron prices are raised significantly.

In dollar-per-ton terms, US CR is now on average $195 per short ton (st) more expensive than offshore product, up $12 week over week (w/w) on average. This is still $116/st lower, however, from mid-January when the average premium for US CR over imported cold band saw a recent peak of $311/st.

This week, domestic CR tags were $1,100/st on average based on SMU’s latest check of the market on Tuesday, March 19. And even while US prices are now at their lowest level since early November, they continue to carry a large premium over imports.

Methodology

This is how SMU calculates the theoretical spread between domestic CR prices (FOB domestic mills) and foreign CR prices (delivered to US ports): We compare SMU’s US CR weekly index to the CRU CR weekly indices for Germany, Italy, and East Asia (Japan and South Korea). This is only a theoretical calculation. Import costs can vary greatly, influencing the true market spread.

We add $90 per short ton to all foreign prices as a rough means of accounting for freight costs, handling, and trader margin. This gives us an approximate CIF US ports price to compare to the SMU domestic CR price. Buyers should use our $90-per-st 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, please get in touch with the author at david@steelmarketupdate.com.

East Asian cold-rolled coil

As of Thursday, March 21, the CRU Asian CR price was $635/st, down $9/st w/w and down just $36/st from a month prior. Adding a 71% anti-dumping duty (Japan theoretical), and $90 per ton in estimated import costs, the delivered price to the US is $1,176/st.

The South Korean theoretical price is $725/st. The latest SMU cold rolled average is $1,100/st, down $5/st w/w, and down $85/st compared to one month ago.

The result: US-produced CR is now theoretically $76/st cheaper than steel imported from Japan but $375/st more costly than cold rolled imported from South Korea.

Italian cold-rolled coil

Italian CR prices were down $24/st to roughly $762/st this week. Italian prices are down now down $51/st from a month ago. After adding import costs, the delivered price of Italian CR is in theory $852/st.

That means domestic CR is theoretically $248/st more expensive than CR imported from Italy. The spread is up $19/st from last week, but the domestic cold band price premium over offshore product from Italy is down $205/st from a recent high of $453/st in mid-December.

German cold-rolled coil

CRU’s German CR price ticked down 21/st vs. the week prior to $778/st. After adding import costs, the delivered price of German cold rolled is in theory $868/st.

The result: Domestic CR is theoretically $232/st more expensive than CR imported from Germany. The spread is still $196/st below a recent high of $428/st during the first week of 2024.

Figure 5 compares all five price indices. The chart on the left shows historical variation from Feb. 1, 2022, through present. The chart on the right zooms in to highlight the recent volatility in US pricing since mid-2023.

Notes: We reference domestic prices 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 a port is important to keep in mind when deciding where to source from. It’s also important to factor in lead times too. In most market cycles, domestic steel will deliver more quickly than foreign steel.

Section 232 tariffs are no longer considered in these prices. That’s because, effective Jan. 1, 2022, the blanket 25% Section 232 tariff was removed from most imports from the European Union. It as replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. A similar TRQ with Japan went into effect on April 1, 2022. South Korea is subject to a hard quota rather then the 25% tariff.

In China, delayed post-holiday restocking is likely to provide some support to steel prices in the near term. Moreover, some mills have already started production cuts in the face of recent losses, which will further aid prices.

However, steel inventory levels in China are sufficient to prevent any large price rises, while market confidence is expected to remain depressed, which might deter buyers from purchasing large volumes in the short term. CRU’s China Steel Export Market Confidence Index remained stubbornly under the key threshold of 50, hitting a 10-month low for the week ending on March 15 (see chart below).

Price trends in the rest of the APAC region are likely to mirror those of China. In Japan, current low sheet export price levels will not be sustainable due to high production costs, and in case of no improvement in demand, steelmakers are likely to reduce output. Likewise, Indian steelmakers might implement production curtailments to support prices. However, the upside potential for steel prices in India is limited due to high inventory levels and weak underlying demand ahead of upcoming government elections. In parallel, Indian export sales are expected to increase as mills are planning to get more aggressive with offer prices.

Prices to weaken further in the EU and rise in the US

In the EU, the downtrend is likely to continue for steel prices as inventories are still at satisfactory levels and domestic demand is unlikely to pick up in the near term. However, if prices bottom out in Asia and in the US, European buyers might abandon their current wait-and-see approach and re-enter the market, posing an upside risk to steel prices in the region.

Meanwhile, Turkish steel prices are expected to remain rangebound in the near term as there is not much room for further declines, given that costs remain relatively stable and there is an upward potential for scrap prices after the Eid holidays in mid-April. Domestic steel demand is also expected to recover after the end of Ramadan, providing necessary support to prices.

In Russia, sheet export prices will likely remain under downward pressure due to weak demand in key export markets. Competitively priced Chinese exports have reduced the attractiveness of Russian steel in the seaborne market, and therefore, Russian producers will continue to offer more material in the relatively profitable domestic market.

In the US, the most recent sheet price increases announced by major mills are likely to halt further price cuts, and additional price hikes are expected in the near term. The success of these increases will be determined by the health of mills’ order books in the coming weeks. Moreover, as lower-priced imports acquired a few months ago are now arriving, and service center inventory levels are still high, an increase in import activity in Q2’24 is not expected, except for CR coils, which are currently tight in supply.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

I reached out to a Chicago-based trader to see what he thought about the market. He said things have been quiet lately. He did not think scrap flows have been severely affected by the recent price declines. But he said, if the prices drop much further, “flows will be affected.”

Regarding pig iron, the market is stalled in Brazil at this time. Brazil has offered material for May shipment at $430 per metric ton (mt) FOB, but US mills want it cheaper. So far, there have been no deals concluded.

I contacted a US-based pig iron trader who said pig iron prices will hold at this level and could increase on a delivered basis since freight rates have risen lately. He predicted a CFR price of $475/mt on the next series of purchases. This would be up from the last price of $460/mt CFR. It should be noted that the US mills need to buy more pig iron from Brazil, since shipments from Ukraine are severely limited. So, it’s questionable that US buyers can lower prices any further.

According to several other players in the scrap community, mills are still interested in buying material, and demand for scrap is still relatively good. Therefore, a plurality of dealers and brokers are of the opinion that the April market will trade basically sideways. However, many acknowledge that, “they have been wrong before.” 

Particulate Matter National Ambient Air Quality Standard

EPA in early February issued its final National Ambient Air Quality Standard (NAAQS) for fine particulate matter (PM2.5). The NAAQS program establishes health-based levels set for six criteria air pollutants that are applied to all major sources across the country through the facility permitting process. The previous primary PM2.5 annual NAAQS had been set at 12 micrograms per cubic meter (μg/m³) in 2012. EPA promulgated a new primary standard of 9 μg/m³.

On behalf of American steel producers, AISI last spring submitted comments to EPA, which argued that the proposed standard could cost the iron and steel sector between $3.1 billion and $9.3 billion in total compliance costs and would make expansion of existing facilities or siting of new facilities more difficult. We also reiterated that the domestic industry already operates under some of the most stringent air standards and we are able to meet these standards while keeping integrated and electric-arc furnace (EAF) steel mills operating around the clock in urban areas. The average background level of PM2.5 is 8 μg/m³ across most of the country, the majority of which comes from natural causes and non-industrial sources. The industry is working with EPA to seek fixes to the complex air permitting process to reduce the challenges to obtaining additional permits under the new more stringent standard.

Cross State Air Pollution Rule

The Cross State Air Pollution Rule (CSAPR) regarding ozone transport, sometimes called the “Good Neighbor Plan,” was promulgated by EPA in June 2023. It imposed regulatory requirements on electric generating units and certain manufacturing facilities —including iron and steel producers — to limit nitrogen oxide (NOx) emissions for the purpose of controlling ground-level ozone in downwind states. For the steel industry, the rule regulated NOX emissions from reheat furnaces and boilers. 

The industry raised concerns, via comments submitted by AISI, regarding EPA’s proposed rule, which would have imposed NOX limits on 11 unit types.  EPA made the final rule more manageable to the industry based on these comments, by removing what we argued would have been technically infeasible requirements. Over the past several months, seven regional appeals courts have acted to stay EPA’s underlying disapproval of states’ air quality implementation plans, effectively halting implementation of CSAPR in more than half of the 23 states the program is designed to cover.

Integrated Iron and Steel Risk and Technology Review Rule

EPA last Monday released a rule specifically focused on steelmaking facilities. The rule imposes limits on hazardous air pollutants (HAPs) from five fugitive emission sources (bell leaks, unplanned bleeder valve openings, planned bleeder valve openings, slag handling and beaching), establishes standards for 13 currently unregulated HAPs, revises two currently regulated HAPs from several different units and sets a requirement to monitor levels of total chromium at facility fence-lines.

Industry submitted substantive data to EPA, and met with the administration to highlight flaws in the proposal where EPA relied on inadequate data and an incorrect understanding of steel production. This advocacy, in addition to successful outreach by Sen. Sherrod Brown (D-Ohio), resulted in the final rule including important modifications to establish technically feasible emission limits. The steel industry is continuing to engage with EPA to ensure the rule is technically sound and achievable.

Taconite Iron Ore Processing Risk and Technology Review Rule

Last month, EPA also issued a final rule imposing air emission limits on the processing of taconite (iron ore) needed for advanced steelmaking. This rule mandated a first-time mercury emission limit for indurating furnaces, which requires installation of unproven control technologies. In January, industry representatives highlighted to EPA that domestically produced iron ore pellets led to much lower emissions than sinter-feed iron ore commonly used in China, Japan, India, and many other countries. AISI submitted comments on the proposed rule last summer which stressed that the rule will be a direct detriment to the steel sector and to steel workers employed both at iron ore mines and steel mills that consume pellets. The industry is now working to determine the best compliance paths as it considers next steps.

New Source Performance Standards for Electric Arc Furnaces

Last summer, EPA issued a final rule revising air emission limits for newly constructed EAF facilities and argon-oxygen decarburization vessels, as well as changing certain requirements for existing EAFs. In particular, the rule imposed more stringent standards on particulate matter for certain units. On Oct. 24, 2023, AISI, jointly with other steel industry groups, filed a petition with the U.S. Court of Appeals for the DC Circuit for review of the rule. Among the key concerns raised by the industry groups are that EPA’s new compliance obligations on existing sources constitute impermissible retroactive rulemaking, EPA’s new opacity and particulate matter limits do not represent the best system of emission reduction adequately demonstrated and EPA’s production-based particulate matter limit is infeasible and inconsistent with the rule-making record. Additionally, industry groups filed a petition for reconsideration of the rule with EPA and submitted two detailed letters to EPA requesting a significant number of technical corrections to the rule. In response to industry letters, EPA recently issued an interim final rulemaking which includes many of the industry’s requested technical corrections.

Regulation of GHGs from Fossil Fuel Power Plants

On May 23, 2023, EPA proposed to regulate GHG emissions from new and existing fossil fuel-fired electric generating units. EPA’s proposal would establish GHG emission limits based on the use of carbon capture, utilization and storage (CCUS) or use of clean hydrogen. The requirements would apply to existing coal-fired and natural gas power plants across the country. While CCUS and clean hydrogen are promising technologies to address climate change, EPA’s regulation would require nationwide adoption of these technologies in a short timeframe or require that the plants cease operation. As a result, EPA’s own analysis anticipates premature closure of a significant number of baseload power plants under the proposed GHG limits. On behalf of the industry, AISI submitted public comments on the rule raising concerns about increased electricity prices and grid reliability issues that could result from these stringent limits. Statements made by EPA senior officials since issuance of the proposal strongly suggest that the final rule, currently under review at the Office of Management and Budget, will focus more on CCUS than hydrogen as the basis for limits and will drop existing gas plants from coverage under the rule. EPA is scheduled to issue the rule in the coming months.

Investigation into Risks Associated with Certain Uses of EAF Slag

The National Academies of Sciences, Engineering and Medicine (NASEM) last November issued its final report to EPA presenting findings from its two-year-long project researching potential human health risks related to unencapsulated beneficial uses of EAF slag in residential settings. Due to uncertainties in existing information, the report stated that NASEM was unable to make an overall characterization of risk related to unencapsulated EAF slag use. The report also identifies additional factors for assessing the possibility of health risks associated with EAF slag use, which include slag particle size, frequency of human contact, chemical composition and use of slag in high pH environments. The report makes recommendations for future research to allow for a better assessment of possible risks from human exposure to EAF slag through beneficial use. AISI and partner associations are working with EPA to ensure industry concerns are addressed as the agency reviews the report findings and considers next steps. 

While these regulations present compliance challenges for domestic steel operations, AISI and our member companies continue to work with EPA to balance our shared goals of and our environmental protection with reasonable regulations —and to ensure that the rules recognize the American industry’s global leadership in clean steel production. As we’ve done in the past, the industry will rise to the challenge, continuing to modernize our plants and find innovative ways to reduce emissions while providing the high-quality steels needed for American economic growth and expansion.

I contacted one service center source today who said that his company, a larger buyer of CR and coated, hadn’t seen anything near $1,000/st. Another source told me that he’d been offered ~$1,150 for galv base and ultimately agreed to ~$1,100 per ton with two of his mill suppliers.

What is the new normal for US HR-CR spreads?

Does that mean the “new normal” HR/CR-coated spread is $300-350/st? A few years ago, I would have said that’s impossible. The market will stabilize around something closer to past norms once. Right?

Also, there might be some reasons why HR/CR-galv spreads are a little wider than usual now. I’m told there is a shortage of quality, domestic CR at present. That could be a combination of production issues at certain mills as well as strong demand in some sectors.

Whatever the issue, trouble sourcing CR appears to have caused lead times at some coaters to kick out longer than they ordinarily might. As far as mid-May, for example, at a mill typically associated with shorter lead times. Maybe these wide spreads will narrow once such issues are resolved.

That said, recall that we saw plate establish a massive premium over coil in early 2022. Two years later, that premium, while narrower than in Q1’22, remains much wider than pre-pandemic norms. So what’s to stop domestic sheet mills from establishing, as plate mills did, a wider premium than in the past?

Perhaps imports. The gap between US and overseas HR prices has nearly closed once applicable duties, tariffs, and importing costs are taken into account. That’s not the case for CR and coated products. Maybe as the foreign/domestic spread narrows when it comes to CR, so too will the gap between domestic HR and CR tags?

March imports looking up

As for steel imports in general, the US was through March 19 licensed to import 1.66 million metric tons (mt) of steel, or 87,616 mt per day, according to government figures. That puts us on pace to import another 1.05 million mt by the end of March, for a total of 2.7 million mt. That would mark the highest single month for steel imports since 2.81 million mt in April 2022 – nearly two years ago.

If we look just at flat-rolled, it’s a similar story. The US was licensed to import 646,037 mt of steel through March 19, or 34,002 mt per day. If that pace continued, it would equate to an additional 408,023 mt. That would result in a March total of 1.05 million mt of flat-rolled steel. That would mark the highest number for flat-rolled imports since 1.13 million mt in March 2022.

Granted, the final numbers could be lower than that. License data is lumpy by nature, especially since Section 232 quotas were rolled out in 2018. If South Korea, for example, has already reached its quota limit for Q1 HR imports, no additional tons of Korean HR will arrive later this month.

Supply chain snarls strike back

There are, however, reasons why import numbers might continue to go up. Why? Some of you have told me that material you ordered for Q1 delivery to US ports is running late. That’s in large part because of the supply chain snarls. Namely, the drought on the Panama Canal and fighting on the Red Sea.

The result: Material ordered last year that was supposed to arrive in January or February might only be hitting domestic ports now. And I’m told we could see more of the same in April. In short, there is good reason to think the downward trend we saw in imports from January to February might not continue into March.

That’s not to say that US prices won’t keep going up. The US economy continues to truck along despite economic troubles in Europe and in China. Service center inventories have moved lower. And we’ve seen early indications that service centers, some of which bought heavily over the last couple of weeks, are increasing prices along with domestic mills. (See slide 38 here.) Still, it’s worth keeping a close eye on imports as you assess the supply-demand balance moving forward.

SMU Community Chat

Speaking of supply chain issues, don’t miss our next Community Chat on Wednesday, April 3, at 11 am ET with Anton Posner, CEO of Mercury Resources. We’ll discuss the Panama Canal, the Red Sea, and all things logistics. You can register here.

Also, a big shoutout to Barry Zekelman, executive chairman and CEO of Zekelman Industries, for joining us for a Community Chat earlier this week. It was a good conversation. If you missed it, you can catch a recording here.

Finally, thanks to all of you for your continued support of Steel Market Update!

Thus far in March, HR futures have shot back up, with the April future gaining $102/st, settling today at $888/st, while the May future has gained $122/st, settling today at $942/st, as the curve has flipped back to backwardation.

“Where we’re going, we don’t need roads.”

– Doc Brown, “Back to the Future”

CME hot-rolled coil futures curve $/st

The May future has jumped $64/st over the past two days, with the price action indicating strong expectations that another mill price increase announcement is imminent. Moreover, the next price increase will be followed by an additional increase, or increases, considering May is trading at $942/st. 

May CME HRC future $/st

Open interest (the number of outstanding futures contracts, or short tons in this case, across the HRC futures curve) climbed to 519,400 st Wednesday night, on track to increase on a m/m basis for the fourth consecutive month.

Rolling 2^nd month CME HRC future $/st & open interest (red) (22-day MA ylw)

This chart shows monthly trading volume across the Midwest HRC futures curve going back to 2010. The yellow line is a 12-month moving average.

I picked a 12MMA because it made the chart look the best to help me prove my point, but that’s not important.

What is important is the steady growth in trading volume over the years.

Monthly volume CME HRC futures curve with 12MMA

Some might even call this exponential growth, but that is only because they don’t know what exponential growth is. Nonetheless, the good news is that the futures market has plenty of liquidity to get the trades you need done, just as long as you are willing to trade in the front months. There are even options that trade on HRC futures, which have also become relatively more liquid, especially on certain days.

Interestingly, a major force behind the growth in trading volume has arisen from financial players. Proprietary trading shops and hedge funds are flocking to HRC futures with their statistical models, technical analysis, cross-asset spreads, and volatility arbitrage strategies. This is a beautiful thing for commercial players, as they can take advantage of the crazy market moves sometimes driven by this crowd of financial types to better manage an extremely volatile period in flat rolled.

It was two weeks ago that Nucor and Cleveland-Cliffs announced price increases. Last week was tricky as the March busheling future settled down $51.04/long ton (lt) to $437.77/lt; the CRU dropped a surprising $62 w/w to $755/lt; and iron ore took a major beating, falling $15 to end the week at $99.91/metric ton.

The futures market shook that off this week and has been aggressively bidding the HR futures up. However, busheling futures have not yet seen anything resembling the move in the HRC futures.

In fact, busheling futures have declined thus far in March for all months except May. The moves have been rather negligible, but “Where’s the gold, Mikey?” and, for that matter, “Where’s the beef?”

I tell ya, busheling gets no respect.

How does hot rolled rally $100 in March, but busheling doesn’t budge?

CME busheling futures curve $/lt

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 Mr. Feldstein 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.

Worthington Steel’s profits jumped in its fiscal third quarter of 2024 vs. a year earlier, its first quarter as a standalone company.

The Columbus, Ohio-based steel processor reported net earnings attributable to controlling interest of $49.0 million in its Q3’24 ended Feb. 29, up a whopping 807% from $5.4 million a year earlier on net sales that increased 3% to $805.8 million.

“The Worthington Steel team delivered a strong third quarter and I want to thank and congratulate our employees on their great performance in our first quarter as a standalone company,” Geoff Gilmore, president and CEO, said in a statement on Thursday.

“We saw improvements in sales, operating income, and net income over the same quarter in 2023, and our teams are laser-focused on finishing the fiscal year strong,” he added.

The company said that on Dec. 1 of last year, a $150 million distribution was paid to the former parent firm, now Worthington Enterprises, in connection with the separation.

Recall that Worthington Industries completed its planned split into two separate companies, Worthington Steel Inc. and Worthington Enterprises Inc., on Dec. 1.

Worthington also noted that on March 13 its joint venture TWB Co. signed a licensing agreement with AcerlorMittal Tailored Blanks for a patented ablation technology. This will expand the organization’s capabilities in North America.

Looking ahead, Gilmore was bullish.

“Our team is aligned and focused on creating value for our shareholders and working with our customers to ensure the products the world uses every day are stronger, better performing, and more durable,” he said. “I’m optimistic about our future and confident in our team, our growth plans, and our strategy.”

As CMC said in its fiscal second-quarter earnings report, the micro-mill became the first in the world to roll merchant bar quality (MBQ) products during the quarter ended Feb. 29.

CMC’s president and CEO, Peter Matt, said on Thursday’s earnings call with analysts that historic rainfall in California in recent months has delayed construction projects and caused a temporary excess of rebar in the West Coast markets.

As a result, Matt said the Arizona 2 micro-mill will focus on the ongoing commissioning of its MBQ production. He said it will “return to rebar when the market is in better balance.”

While this approach will deviate from the original schedule, Matt noted that it will not extend the overall timeline for the mill’s ramp-up.

However, he added, it will impact the company’s ability to provide a volume forecast for the current fiscal year.

Commenting on additional rebar capacity announcements by various companies, Matt said CMC believes there is going to be a difference between the capacity additions that have been announced vs. the capacity that is actually going to be built.

“We’re very comfortable with our estimates on how much capacity actually gets built. The market will manage that capacity,” he commented.

CMC is extremely bullish on future steel demand in North America. Matt said the “once-in-a-generation investment cycle” at present, boosted by government infrastructure spending, “will power construction activity for years to come.”

All told, US HRC prices are now 5.6% more expensive than imports. The premium is down slightly from 6% in last week’s analysis but off from a high of 27% just a little over two months ago. It’s still one of the smallest margins since early October.

In dollar-per-ton terms, US HRC is now on average just $45/st more expensive than offshore product, $4 lower week on week (w/w) on average, and off by $236/st from an average premium of $281/st just about a month ago.

This week, domestic HRC tags were $795/st on average based on SMU’s latest check of the market on Tuesday, March 19. US hot-rolled HRC prices have fallen below $800/st on average for the first time since early mid-to-late October.

Methodology

This is how SMU calculates the theoretical spread between domestic HRC prices (FOB domestic mills) and foreign HRC prices (delivered to US ports): We compare SMU’s US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and East and Southeast Asian ports. This is only a theoretical calculation. Import costs can vary greatly, influencing the true market spread.

We add $90 per short ton to all foreign prices as a rough means of accounting for freight costs, handling, and trader margin. This gives us an approximate CIF US ports price to compare to the SMU domestic HRC price. Buyers should use our $90-per-st 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, please get in touch with the author at david@steelmarketupdate.com.

Asian HRC (East and Southeast Asian ports)

As of Thursday, March 21, the CRU Asian HRC price was $508/st, down $9/st vs. the prior week. Adding a 25% tariff and $90/st in estimated import costs, the delivered price of Asian HRC to the US is approximately $725/st. The latest SMU hot rolled average for domestic material is $795/st.

The result: US-produced HRC is theoretically $70/st more expensive than steel imported from Asia. The spread is down $9/st vs. last week – far from a seven-month high of $281/st in late December.

Italian HRC

Italian HRC prices were down $25/st to roughly $656/st this week. Italian prices are now just $79/st away from a recent bottom of $577/st last October. After adding import costs, the delivered price of Italian HRC is in theory $746/st.

That means domestic HRC is theoretically about $49/st more expensive than HRC imported from Italy. The spread is up $5/st last week. The domestic hot band price premium over offshore product from Italy is down $248/st from a recent high of $297/st in mid-December.

German HRC

CRU’s German HRC price also ticked down just $12/st vs. the week before, to $690/st. After adding import costs, the delivered price of German HRC is in theory $780st.

The result: Domestic HRC is theoretically just $15/st more expensive than HRC imported from Germany. The spread is down $8/st w/w and down $250/st from 2023’s widest spread of $265/st.

Figure 4 compares all four price indices. The chart on the right zooms in to highlight the difference in more recent pricing.

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, Section 232 tariffs no longer apply 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 prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

Read on for highlights of the conversation.

Mexico and imports

Legislation was recently introduced in both the Senate and House of Representatives to reimpose the 25% Section 232 tariffs on steel imports from Mexico. Zekelman said he worked with Sens. Brown and Cotton to bring the “Stop Mexico’s Steel Surge Act” to the floor.

Zekelman spoke passionately against the surging pipe and tube imports from Mexico, specifically steel conduit. He said imports from Mexico have gone from 2% of total conduit imports to 20% and there’s even a new conduit plant under construction in Mexico.

“Who the hell do these people think they are? You signed a deal. Own up to it,” he quipped, referring to the US’ suspension of the 232 tariffs and Mexico having agreed to monitor its exports more closely.

Noting that Zekelman Industries had to close a California conduit facility in 2022, he said the imports from Mexico are “devastating our market, and it’s ridiculous.”

“Adhere to the deal you signed onto, and we’ll be fine,” he signaled to Mexico.

“But until then, I’m going to fight like a honey badger,” he noted.

Expressing the urgency of the situation, he added that he’d like to see action from the executive branch “by the end of this call.”

Commenting further on pipe imports, Zekelman noted significant tonnages of plumbing pipe are coming from the UAE.

“When you go buy a piece of pipe from Oman or UAE … what’s so great about their pipe?” he questioned. He said the region is able to offer lower-priced pipe because it’s made with “cheap Russian and Iranian steel” formed into pipe in the UAE, effectively circumventing US sanctions.

“Everybody should know there’s blood running through those pipes, not water,” he stated, encouraging buyers to have morals and a sense of pride by supporting people and production closer to home.

Also regarding imports, Zekelman said it’s important to take into account more than just the bottom line. There are logistics issues to consider, like rising shipping rates and delays in the Panama and Suez canals, as well as the overall carbon footprint related to shipping products around the globe.

“Cheap is expensive,” he cautioned.

Current market dynamics

Regarding demand and current market dynamics, Zekelman said his company is busy. While certain areas have tapered off, others have picked up dramatically, he said, with the overall trend line pointing upwards.

“We’re hearing really good, positive reviews from all segments of the market. People are still busy,” he commented.

Labor availability remains an issue, however, especially in the construction market. He noted that his company is trying to fill over 200 hourly and 70 salary positions at present.

He said solving the labor shortage will require a multi-pronged attack, including the use of heavy automation, training and recruiting, and attractive pay. He noted that it may take decades to get people back into more traditional skilled trades instead of going to college.

Zekelman also welcomed new steelmaking capacity coming to the market. With the latest and greatest technology available, there are plenty of benefits to the additional capacity, he said.

“It’s more efficient, it’s higher quality, greater access and speed to the market. It should displace some imports. It should displace some old legacy capacity that has issues. I mean, that’s just change, right?” he commented.

“Bring it on,” he added.

Reshoring

In a world at risk of Black Swan events now more than ever and their potential to cause supply disruptions around the globe, Zekelman welcomed the reshoring of manufacturing to North America.

“There’s a lot of chaos out there. There are a lot of things that could happen that could significantly disrupt our ability to function. And the way to control that is to bring it close to home,” he noted.

“Come on in,” he said. “They’re creating jobs here, consuming American steel, supporting communities, and that’s what we want.”

Dream on

Zekelman said he wasn’t joking when he talked previously about wanting to own a steel mill.

“It would be a natural thing to do with the amount of steel we consume,” he commented on the chat.

Noting that he’d never make such an investment in an inefficient, “half-assed way” without a solid plan, owning a steel mill would be the “crowning achievement” of his career, he said.

But wait, there’s more

SMU subscribers can access a full replay of the conversation and hear more from Zekelman, including a discussion of his $1 billion investment in Z Modular, on our website.

Zekelman will also be joining us once again for a fireside chat at the Steel Summit 2024 in August in Atlanta. For more information or to register, visit www.events.crugroup.com/smusteelsummit/home.

Up next on SMU’s Community Chat series is a logistics update from Anton Posner, CEO of Mercury Resources, on Wednesday, April 3 at 11 a.m. ET. You can register here.

CMC cited seasonal issues and challenging weather conditions as reasons for the slide in its fiscal second-quarter earnings vs. the same period last year.

The Irving, Texas-based metals recycler and long product producer reported net income of $85.8 million in its fiscal Q2’24 ended Feb. 29. That’s down 52% from $179.8 million a year earlier on Q2’24 sales that slid 8% to $1.85 billion.

“CMC generated historically strong financial results during the second quarter despite seasonal weakness and challenging weather conditions in several key geographies,” Peter Matt, president and CEO, said in a statement on Wednesday.

Matt said the company continues to see good fundamentals within its North American markets.

He noted that encouraging developments include steel product margins over scrap ending Q2 on an upward tilt. Also, new contract awards in the company’s downstream business rebounded sharply, “pointing to strength in the construction pipeline.”

CMC said North America Steel Group shipment volumes of finished steel — which include steel products and downstream products — were 3.6% higher year over year (y/y). The average selling price for steel products slipped $80 per ton vs. Q2’23, while the cost of scrap used jumped $33 per ton. This resulted in a y/y fall in the steel products margin over scrap of $113 per ton.

Micro-mill updates

In January, CMC’s new Arizona 2 plant became the first micro-mill in the world to roll merchant bar quality (MBQ) product, according to Matt.

“Commissioning of MBQ continues to progress well, and we have successfully produced and sold several product varieties,” he said.

Based on CMC’s current outlook for production mix and volume levels, he commented that the plant is expected to achieve breakeven Ebitda results by the end of the fiscal year.

Site improvements at the company’s Steel West Virginia micro-mill in Berkeley County, W.Va., are nearing completion. Initial equipment deliveries are scheduled for the spring and early summer, with a planned start-up in late calendar 2025.

Outlook

Finished steel shipments in CMC’s North America Steel Group are expected to follow a typical seasonal pattern during Q3’24, “while adjusted Ebitda margin should be largely stable on a sequential basis,” Matt said.

“We continue to expect robust spring and summer construction activity driven by increased infrastructure investments, which we anticipate will support an already strong demand backdrop in both the North America Steel Group and the Emerging Businesses Group,” he added.

Assembly recovery and continued improvements in supply during the second half of 2023 have pushed retail inventory levels in February to roughly 1.7 million units. The result is a 3.8% increase vs. the prior month and a 44.7% boost y/y.

North American vehicle production, including personal and commercial vehicles, totaled 1.27 million units in February, a 0.6% decline from 1.28 million units in January. It’s almost 3% ahead, however, of the 1.24 million produced one year ago.

Below in Figure 1 is a five-year snapshot of North American light-vehicle production since 2019 on a rolling 12-month basis with a y/y growth rate. Also included is a five-year snapshot of the average monthly production, which includes seasonality since 2019.

A short-term snapshot of assembly by nation and vehicle type is shown in the table below. It breaks down total North American personal and commercial vehicle production into US, Canadian, and Mexican components. It also includes the three- and 12-month growth rates for each and their momentum change.

For the three months and 12 months through February, the growth rate for total personal and commercial vehicle assemblies in the USMCA region is mixed – with personal well ahead. The momentum change, however, remains slightly behind for both.

Personal vehicle production

The longer-term picture of personal vehicle production across North America is shown below. The charts in Figure 2 show the total personal vehicle production for North America and the total for the US, Canada, and Mexico.

In terms of personal vehicle production, the region saw a 4.7% m/m decline in February, after seeing a 24% boost the month prior. The result was also a 0.8% gain vs. the period one year ago.

The US saw the smallest decrease in units produced and percentage loss in February vs. January. The US was down 11,979 units (-1.8%), followed by Canada, down 14,165 units (-12.8%), while Mexico produced 19,555 fewer units (-9.0%) m/m.

Production share across the region was largely unchanged. The US saw personal vehicle production share of the North American market move up to 68.4%. Both Mexico and Canada saw their share slip to 20.8% and 10.8%, respectively.

Commercial vehicle production

Total commercial vehicle production for North America and the total for each nation within the region are shown in the first chart in Figure 3 on a rolling three-month basis. Commercial vehicle production in the US and Mexico and their y/y growth rates, as well as the production share for each nation in North America, are also shown.

North American commercial vehicle production was up 12.8% in February with a total of 337,549 units produced during the month, an increase of 38,280 units m/m. The gain was driven by the US, which saw a 16.3% boost in commercial vehicle assemblies in February, producing 32,388 more vehicles m/m – a total of 231,012 units last month.

Canada produced 13,184 light commercial vehicles last month, a 13.1% increase from January’s 11,659 total units. February marked Canada’s 28th straight month of commercial vehicle assemblies after ceasing production for nearly two years from Jan. 2020 through Oct. 2021.

Mexico also reported production growth in February vs. January, up 4.9% and producing 4,366 more vehicles over the same period for a total of 93,353 units in February.

The overall increase put the commercial production growth rate at just 1.5% for the region last month, slightly behind the growth rate gain of 1.6% in January.

The market share across the region was largely unchanged. The US was up 0.5 percentage points, with a total share of 68%, followed by Mexico with a 28% share, and Canada with a 4% share in February.

Presently, Mexico exports just under 80% of its light-vehicle production, with the US and Canada as the highest-volume destinations.

Editor’s Note: This report is based on data from LMC Automotive for automotive assemblies in the US, Canada, and Mexico. The breakdown of assemblies is “Personal” (cars for personal use) and “Commercial” (light vehicles with less than 6.0 metric tons gross vehicle weight rating; heavy trucks and buses are not included).

Lethbridge, Alberta-based Varsteel said Pacific Steel (also known as Acier Pacifique) will operate independently as a subsidiary of Varsteel. Further terms of the deal were not disclosed.

Varsteel noted that the buy fulfills a growth objective by “establishing a comprehensive range of structural steel products from coast to coast.”

Pacific, a structural steel service center, has two facilities in Laval. The company carries a full line of wide-flange beams, specializing in heavy jumbo beams, with an independent rebar fabrication and installation division.   

The company serves customers in Quebec, Ontario, the Maritime Provinces of Canada, and the US.

Varsteel has 32 locations in Canada and the US.

“There are indicators this month that business conditions at firms may finally begin to pick up in the coming months. Inquiries into new projects grew at their fastest pace since November, and the value of newly signed design contracts increased at their fastest pace since last summer,” said AIA chief economist Kermit Baker.

The ABI is a leading economic indicator for nonresidential construction activity, projecting business conditions approximately 9-12 months into the future. Any score above 50 indicates an increase in billings, while a score below 50 indicates a decrease.

“Given the moderation of inflation for construction costs and prospects for lower interest rates in the coming months, there are positive signs for future growth,” Baker added.

The project inquiries index rose 2.2 points to 56.0 in February, now up to a three-month high. The design contracts index increased by 1.4 points to 51.1, the highest score seen since last June.

Results remained mixed across the country. The Northeastern, Western and Southern region indices all inched up from January but still remain in contraction territory. The Midwestern index saw a slight decline, but continues to indicate improving business conditions for the third consecutive month.

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Steel prices might be at an inflection point. How do you expect prices to trend over the next three months?

“Up, now that pent-up demand has somewhat cut loose, the mills will start pumping prices until there is resistance and customers stop placing orders, then they will chase each other to the bottom again.”

“I feel prices are going to rebound into May and then begin to move back down due to more supply than demand.”

“Prices are bottoming out and will increase for a few months. April and May will be up.”

“Expecting an uptick in price through maybe June.”

“I expect prices to rise in the next month, then become stable before hitting downward pressure with the summer slowdown.”

“Hold steady for the next couple of weeks, dip down to a bottom in April, and then rise through June before the ‘summer slowdowns.’”

“I don’t think we’re quite there get. We expect prices to fall more from here and get close to $700/ton in HRC.”

“Flat – inventories are just lean enough for mills to stay firm.”

“Flat – demand is soft, automotive has high inventory levels.”

“Likely flat over the next couple weeks with an uptick to follow.”

Is demand improving, declining or stable?

“Demand has improved, spot buying was very active coming from nothing, and contract buying is solid with monthly prices most likely bottomed.”

“Slight improvement.”

“Improving.”

“Seems relatively stable at the moment.”

“Demand is fairly stable, but purchasing patterns are not as big buyers are just playing the waiting game waiting for low price points.”

“Demand remains stable for us, but we’re hearing pretty soft tales elsewhere.”

“Stable to soft. Auto is decent, manufacturing soft, construction steady.”

“Flat or declining, manufacturing is in a mild recession.”

“Declining – customers are slowing down for the most part.”

“Declining due to strong inventory levels and weak demand.”

Is inventory moving faster or slower than this time last year?

“Probably about the same. Still hand to mouth for us.”

“Roughly the same as last year, the overall market conditions appear to be much the same as they were a year ago.”

“Inventory is moving at about the same rate as last year.”

“Faster – supply chain inventories are low.”

“Inventory is moving fast in this current environment, because of the bottom being found on prices.”

“Moving a little faster.”

“A bit slower, but not much.”

“Slower due to price instability at this moment.”

“Slower, due to lack of demand.”

Are imports more attractive vs. domestic material?

“No, domestic market too soft.”

“They’re still attractive, but lead times are tough.”

“Still not attractive as domestic prices are still within reason, and lead times have yet to really jump out.”

“Import pricing is good, but lacking confidence in the domestic market on their extended lead times is making them unattractive.”

“They are when domestic mills are raising prices too high, but lose their attractiveness when mills bring pricing back down to earth.”

“Not attractive.  Domestic pricing close to import pricing.  Supply is plentiful.”

“No, by the time they arrive, there is no telling where the market will be.”

“Imports are not attractive due to price and suspect quantity issues.”

What’s something that’s going on in the market that nobody is talking about?

“Mills inducing and lowering demand with their price hikes and quick drops.”

“The potential return of AHMSA now that its owner has stepped down from the board.”

“I’d love to hear more about AHMSA and Evraz. Both situations seem unknown.”

“I think politics is taking away from other issues, which may be some of the steel activities.”

“What will the steel industry look like in US after the fall election?”

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Auto sales recovered from the slowdown seen to kick off the year, helped by milder weather conditions last month. Even though February’s sales were 6.9% below the pre-pandemic average for the month, it is the closest things have been to the pre-pandemic benchmark since June 2023.

That trend has been aided by an uptick in production, improving inventory levels to start 2024 – roughly 40% higher y/y – gradually improving product availability, chiefly in the affordable vehicle segment.

The average daily selling rate (DSR) was 49,901 – calculated over 25 days – up from February 2023’s 47,448 daily rate. Passenger vehicle sales increased 8.8% y/y while sales of light trucks moved higher by nearly 10% over the same period. Light trucks accounted for 80% of last month’s sales, roughly the same as its share of sales in February 2023.

Below in Figure 1 is the long-term picture of sales of autos and lightweight trucks in the US from 2019 through February 2024. Additionally, it includes the market share sales breakdown of last month’s 15.8 million vehicles at a seasonally adjusted annual rate.

The new-vehicle average transaction price (ATP) was $47,244 in February, down 0.3% from January. Last month’s ATP was also 3.1% (-$1,519) below the year-ago period, according to Cox Automotive data.

Incentives recovered last month after they had decreased in January – moving lower for the first time in four months. February’s incentives were $2,565, up 9.3% vs. January, but still 2.6% behind December’s 31-month high of $2,633. With the m/m increase, incentives are nearly 5.4% of the average transaction price. Incentives are up more than 92%, or $1,230, y/y.

In January, the annualized selling rate of light trucks was 12,683 million units, up 6.3% vs. the prior month and y/y. Annualized auto selling rates saw similar dynamics, up 4.6% and 6.3% in the same comparisons.

Figure 2 details the US auto and light-truck market share since 2013 and the divergence between average transaction prices and incentives in the US market since 2020.

Editor’s Note: This report is based on data from the US Bureau of Economic Analysis (BEA), LMC Automotive, JD Power, and Cox Automotive for automotive sales in the US, Canada, and Mexico. Specifically, the report describes light vehicle sales in the US.