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

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

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

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

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

Guppy Swallowing a Whale?

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

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

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

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

A Reasonable Bull Case

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

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

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

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

Our latest survey data broadly reflect that consensus.

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

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

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

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

How Long Will the UAW Strike Last?

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

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

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

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

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

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

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

Shawn Fain Takes to Twitter (aka X)

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

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

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

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

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

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

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

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

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

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

About Flack Global Metals

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

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

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

A lightly edited version of the interview is below.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SMU: How did you choose the steel industry?

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

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

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

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

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

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

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

Click here to learn more about Resonac.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Italian Hot-Rolled Coil

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

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

German Hot-Rolled Coil

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We want to hear your thoughts, too! Contact david@steelmarketupdate.com to be included in our questionnaires.

When and at what price level do you think steel prices will bottom, and why?

“We’ve got a bit of room left. I bet we’ll get right around $600/ton.”

“Below $600 – too much capacity.”

“Depends on the length of the auto strike.”

“Plate will bottom in Q4 in the $1450/t range, then rebound higher in Q1/2024.”

“I think we are there. The mills will shutter some capacity to protect pricing from further erosion.”

“After the strike of the ‘Big Three’ is over.”

“Prices will plateau in November. After that, 2024 purchases start in earnest. Everything changes if the strike ends soon.”

“Sometime in October around $700/ton.”

“Plate prices could trend down over the next 6-9 months and bottom towards the middle of next year.”

“$650 due to the UAW strike. Also, demand is lower

Is demand improving, declining or stable, and why?

“Our demand is stable to declining.”

“Demand is remaining stable, but some folks seem pretty bearish out there.”

“Demand is improving slightly for us.”

“Plate demand is stable currently.”

“Demand for our company is still steady.”

“Our demand is declining due to the strike.”

“There’s been a general slowdown in plate, but the bigger factor is the delta between HRC and plate.   We are seeing more customers move to 72″ wide or narrower on 3/4″ thick and down.”

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

“For us, it continues to be a bit faster.”

“It’s been slower due to the economy.”

“We can’t keep inventory on our floor.”

“No change year over year for us.”

“Demand has been slower for us. As the auto strike continues, we will see more of an impact.”

Are imports still attractive vs. domestic material? Why or why not?

“Depends on the product. Pre-painted and lighter gauges are attractive.”

“Nope. Too long to get here.”

“No. Because of price and lead time.”

“Pricewise, they continue to be on the cusp. Lead times are obviously the main hurdle for imports – but some folks can wait.”

“Imports are always attractively priced for us.”

“No – the spread is too small.”

“We’ve turned down four recent import plate offers. Not attractive enough to consider.”

“Not at this time as lead times for arrival are too far out, and the perception of declining plate prices domestically will probably keep people on the sidelines.”

“Pricing is only attractive in Thailand and India because other pricing is the same as domestic costing.”

Will the UAW strike have an impact on your business? Why or why not?

“It will have a limited impact, but it depends on the length of the strike.”

“Yes, tangential impact on supply and demand.”

“Yes – falling replacement cost.”

“Most folks seem to think it lingers at minimum … for a few weeks. The union certainly has a big war chest to fight. On the market side of things, I understand the rhetoric about pricing spiking after the strike is settled. But I do question whether it would last. We have a soft scrap market, short mill lead times, and a lowering utilization rate. Add to that, imports remain waiting in the wings. So, while I do expect the mills to try and raise pricing after the strike is over, I don’t see it lasting medium term.”

“Yes, if it causes the price of steel to continue to drop.”

“The UAW will impact every business and every person regardless if you are in the automotive industry or not.”

“If it goes on long enough, it will impact a lot more than our business. Hopefully cooler heads will prevail, and they will come to a reasonable settlement.”

“Yes, if furnaces shutter supply may be reduced in the short term.”

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

“The “fabrication arms race” between service centers and mills.”

“Price increases likely to come from the strike/contract UAW is pushing for.”

“Iron ore futures.”

“Short mill lead times! I continue to look at those as a major hurdle for the bulls out there. I don’t expect the end of the strike or the scheduled outages to reverse that trend.”

“Everyone seems to be suffering from employee shortages!”

“I have not heard much on the impact of BRICS move to dethrone the US dollar and what impact it will have on our industry.”

“AHMSA’s possible restart, or at least takeover. It has gone very quiet.”

“The (potential) sale of US Steel has gotten quiet.”

“Maintenance outages at some mills.”

“Possible anti-dumping tariffs from Asian countries.”

“The testing of this promising NETL-developed membrane at the Edgar Thomson Plant is an important step to move this groundbreaking technology closer to commercial deployment,” NETL’s David Hopkinson, technical portfolio lead for Point Source Carbon Capture, said in a statement from U.S. Steel on Wednesday.

U.S. Steel said the unit is scheduled to be installed at the Edgar Thomson Plant, part of its Mon Valley Works, in early 2025. The field test is set to run for approximately six months.

Rising inventory levels should continue to restore balance to the market and boost vehicle availability, but the UAW strike action against Detroit’s Big Three – Ford, General Motors, and Stellantis may create some near-term turbulence.     

North American vehicle production, including personal and commercial vehicles, totaled 1.5 million units in August, up from 1.13 million units in July, and was 7.3% ahead of the 1.1.39 million produced one year ago.

Below in Figure 1 is North American light-vehicle production since 2013 on a rolling 12-month basis with a YoY growth rate. Also included is the average monthly production, which includes seasonality since 2013.

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 August, the growth rate for total personal and commercial vehicle assemblies in the USMCA region is up by double-digits. The momentum change, however, is well behind.

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 35% boost month over month (MoM) in August, after declining by 17% the month prior. The result was also a 10.3% boost vs. the period one year ago.

The US saw the largest increase in both units produced and percentage gain in August vs. July, up 235,960 units (+45.3%). It was followed by Mexico, up 31,542 units (+14.8%), while Canada produced 24,513 more units (+24.5%) MoM.

Production share across the region was largely unchanged. The US saw personal vehicle production share of the North American market edge up marginally to 64.7%. Both Mexico and Canada saw its share slip to 23.2% and 12.1%, 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 YoY growth rates, as well as the production share for each nation in North America, are also shown.

North American commercial vehicle production was up 26.4% in August with a total of 374,694 units produced during the month, an increase of 78,308 units MoM. The gain was driven by the US, which saw a 27.8% boost in commercial vehicle assemblies in August, producing 56,934 more vehicles MoM.

Canada produced 18,380 light commercial vehicles in August, a 43.7% increase from July’s 12,789 total units. August marked Canada’s 22^nd straight month of commercial vehicle assemblies after ceasing production for nearly two years from Jan. 2020 through Oct. 2021.

Mexico also reported a double-digit production growth in August vs. July, up 20% and producing 15,783 more vehicles over the same period.

The overall increase put the commercial production growth rate at 4.6% for the region last month, down from 9% in July.

The market share across the region was largely unchanged. The US was up four percentage points, with a total share of 69.2%, followed by Mexico with a 26.2% share, and Canada with at 4.5% share in May.

Presently, Mexico exports just under 80% of its light-vehicle production, with the US and Canada 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 less than 6.0 metric tons gross vehicle weight rating; heavy trucks and buses are not included).

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

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

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

And we’ll of course take your questions too.

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

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

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

A global auto supplier, ZF is based in Friedrichshafen, Germany. It has locations around the world, including in the US.

The UAW said workers at ZF, members of UAW Local 2083, supply front axles to a Mercedes plant located nearby. It said they “have been fighting for a fair contract that ends tiers, raises wages, and provides decent health care.”

Workers voted down a contract from ZF on Tuesday, according to a UAW statement.

ZF said the plant in Tuscaloosa would operate while talks with the union continue, according to a report at Reuters.

The strike at ZF comes as the UAW is also on strike against all of the Detroit Three automakers in actions that targets specific plants across Ford, General Motors, and Stellantis. The union said the strike could expand on Friday at noon if a new labor deal is not reached with the auto companies.

Mercedes-Benz USA did not return a request for comment by time of publication.

Auto sales continue to be impacted by higher financing rates and high-priced inventory. And while production levels are roughly back at pre-pandemic levels, delivery rates are still running roughly two months – from the production line to dealers.

Production recovery continues to build, pushing days’ supply of light vehicles to rise to 38 in August, slightly higher than last month but still about 40% below the pre-pandemic average.

Retail incentives, though being pressured higher, up 96% YoY in August, are still just about half of what they were in August 2019 – before the global pandemic and semiconductor shortage cut auto assemblies.

Despite that, the average daily selling rate (DSR) was 49,205 – calculated over 27 days – up from August 2022’s 43,626 daily rate. And passenger vehicle sales increased YoY while sales of light-trucks ticked up by 18.4% over the same period. Light-trucks accounted for 80% of last month’s sales, roughly the same to its share of sales in August 2022. 

Below in Figure 1 is the long-term picture of sales of autos and lightweight trucks in the US from 2013 through August 2023. Additionally, it includes the market share sales breakdown of last month’s 15 million vehicles at a seasonally adjusted annual rate.

The new-vehicle average transaction price (ATP) was $48,451 in August, up just 0.2% from July. Last month’s ATP was also up 0.3% (+$150) above the year-ago period, according to Cox Automotive data.

Incentives increased again for the 10th straight month. Last month’s incentives were $1,902, up from $1,820 in July, and the highest total since June 2021. With the MoM increase, incentives are roughly 4% of the average transaction price. Incentives are up 96.3%, or $933 YoY.

In August, the annualized selling rate of light trucks was 11.988 million units, down 4.9% vs. the prior month but still nearly 14.8% better YoY. Auto annualized selling rates saw similar dynamics, down 3.1% but up 9.3%, respectively, 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.

“To respect the ratification process, Ford of Canada will not discuss the specifics of the tentative agreement,” the company said.

Unifor said its bargaining committee unanimously recommended that union members ratify the tentative pact. It said the new deal addressed “core” priorities: pensions, wages, and the transition to electric vehicles.

The union did not provide dates for ratification votes. It said those would be released in the coming days after members had been provided with details of the proposed new contract.

“We leveraged our union’s most powerful weapon: the right to strike,” Unifor leaders said in a statement on Tuesday night. “Having so many union members working together to support their bargaining team on the shop floor and online was incredible to see.”

Background

Unifor’s contract with Ford was scheduled to expire on Monday at 11:59 pm ET. A strike was averted after the union said it received a last-minute offer from Ford that met many of its demands.

The union then extended negotiations by 24 hours, during which time it agreed to accept Ford’s offer.

The situation in Canada stands in stark contrast to that in the US.

The United Auto Workers (UAW) union, which represents US auto workers, and the “Big Three” remain deadlocked. And the UAW has threatened to expand its strike against Ford, General Motors, and Stellantis on Friday at noon.

Another big difference: Unifor took the more traditional approach of targeting all the plants at one automaker. The UAW has chosen a different tactic, targeting individual plants across all three union-represented auto companies.

Also, the UAW represents approximately 150,000 workers at the “Big Three” in the US, far more than the 5,600 represented by Unifor at Ford’s Canadian operations.

Might the UAW take aim at that the most profitable pickup platforms of the Detroit Three – the Ford F-150, the Chey Silverado, and the Dodge Ram?

I’ll leave that for the automotive press to cover. By the way, hats off to Automotive News for putting together a good map of where the strike is and a table of where negotiations stand. You can find that here.

Talks of a Bottom? Yes, Really.

I realize it’s hard to look past the UAW strike now, especially with the issue becoming a political hot potato. That said, it’s worth considering what the steel market might look like once a deal is reached. I say that because I’ve heard from a surprising number of you this week that you think a price bottom is closer than might be assumed.

A quick recap of where things stand. Our average hot-rolled coil price is at $660 per ton. The top end of our range is $700 per ton, where smaller spot buyers are. The lower end is in the low $600s per ton, where large buyers and some Canadian mills are.

Our average HRC price bottomed out last year at $615 per ton just before Thanksgiving, according to our pricing tool. The low end dipped into the high $580s per ton. I’ve heard some very large deals might have already happened in that range, perhaps as mills looked to secure volumes ahead of the strike. I’ve also heard those deals might be gone from the market now.

Why might that be? Industry sources will tell you that nearly 1 million tons of capacity were slated to come out of the market as a result of planned fall maintenance outages. The amount of capacity that will be out of the market is higher now with Granite City’s sole active furnace being temporarily idled. I’m also told that some of those planned fall maintenance outages have been extended.

Does that mean that 1.5 million tons are now out of the market? I’m not sure. But it’s safe to assume that it’s a higher figure than previously estimated.

Could prices nonetheless drift lower next week? I wouldn’t be shocked if they did. But as we saw last year, domestic mills aren’t keen to let prices slide much lower than $600 per ton. That’s especially true if it looks like scrap prices might increase next month.

The Prices Hikes Might Already Be Written

It’s also worth noting that mills have made no secret that they intend to announce price increases of as much as $75-100 per ton as soon as there is an inkling of the UAW strike being over.

Is it possible we’d then see a sharp rebound in prices? I think there is some logic to that position.

We won’t have September service center inventory data available until next month. But it’s already clear from our latest survey results that buyers have been reducing inventories.

Let’s say an end to the UAW strike is negotiated and automotive production has to catch up for lost time. Let’s also assume that buyers come back into the market all at once, as sometimes happens.

How far might prices go up and lead times move out? I don’t know the answer to that. But it’s worth thinking about as the drama in Detroit plays out.

But opinion was mixed as to whether prices would continue to go down. Some buyers reasoned that there was more upside risk to prices than downside risk – meaning that now might be the time to lock in lower prices.

SMU’s average hot-rolled coil price has in the meantime slipped to $660 per ton ($33 per cwt), down $30 per ton from last week and down $105 per ton from this time last month. HRC prices now stand at their lowest point since mid-December 2022.

It was a similar story for cold-rolled, which dropped $25 per ton, and galvanized base prices, which lost $15 per ton. Both now stand at $875 per ton. Galvalume base prices slipped $20 per ton to $900 per ton on average. Plate prices were unchanged at $1,465 per ton on average.

We acknowledge that some market participants think sheet prices are at or near a bottom. That said, our sheet momentum indicators remain pointed toward lower until more solid evidence of that bottom emerges.

Our plate price momentum indicators also remain at lower following a plate price decrease announced by Nucor earlier this month.

Hot-Rolled Coil

The SMU price range is $620–700 per net ton ($31.00–35.00 per cwt), with an average of $660 per ton ($33.00 per cwt) FOB mill, east of the Rockies. Both the bottom end of our range and the top end of our range declined $30 per ton vs. one week ago. As a result, our overall average is $30 per ton lower compared to the prior week. Our price momentum indicator for hot-rolled coil is still pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Hot-Rolled Lead Times: 3–7 weeks

Cold-Rolled Coil

The SMU price range is $830–920 per net ton ($41.50–46.00 per cwt), with an average of $875 per ton ($43.75 per cwt) FOB mill, east of the Rockies. The lower end of our range was down $50 per ton week-on-week (WoW), while the top end was unchanged compared to a week ago. Our overall average is down $25 per ton WoW. Our price momentum indicator on cold-rolled coil is still pointing lower, meaning SMU expects prices will decline more over the next 30 days.

Cold-Rolled Lead Times: 5–8 weeks

Galvanized Coil

The SMU price range is $840–910 per net ton ($42.00–45.50 per cwt), with an average of $875 per ton ($43.75 per cwt) FOB mill, east of the Rockies. The lower end of our range was down $20 per ton vs. last week, while the top end of our range was down $10 per ton compared to one week ago. Our overall average is down $15 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 $937–1,007 per ton with an average of $972 per ton FOB mill, east of the Rockies.

Galvanized Lead Times: 4-9 weeks

Galvalume Coil

The SMU price range is $860–940 per net ton ($43.00–47.00 per cwt), with an average of $900 per ton ($45.00 per cwt) FOB mill, east of the Rockies. The lower end of our range was unchanged vs. last week, while the top end of the range was $40 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 $1,154–1,234 per ton with an average of $1,194 per ton FOB mill, east of the Rockies.

Galvalume Lead Times: 6–8 weeks

Plate

The SMU price range is $1,400–1,530 per net ton ($70.00–76.50 per cwt), with an average of $1,465 per ton ($73.25 per cwt) FOB mill. Both the lower end of our range and the top end of our range were sideways compared to the week prior. Thus, our overall average is unchanged 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.

Higher mortgage rates and higher construction costs have slowed single-family housing production, the National Association of Home Builders (NAHB) said.

“High mortgage rates above 7% combined with low resale inventory and higher home prices are slowing housing production, as many first-time home buyers and younger households are struggling to purchase an affordable home,” Alicia Huey, NAHB chairman, said in a statement.

Huey added that there’s currently a nationwide shortage of 1.5 million units in addition to elevated mortgage rates. “We need to increase the housing supply to get this market back into balance to meet the pent-up demand for when market conditions improve,” she said.

NAHB anticipates that mortgage rates will remain elevated. The association expects the Federal Reserve to increase rates one more time later this quarter, according to Danushka Nanayakkara-Skillington, NAHB’s assistant VP for forecasting and analysis.

Regionally, combined single-family and multi-family starts are down in all four regions, with the largest decline being the Northeast and the lowest in the South.

The UAW launched a strike on Sept. 15 against all three Detroit-area automakers when a labor agreement was not reached. The union is targeting specific plants across all three companies. That’s a departure from the standard practice of targeting all the plants at one automaker.

So far, the union has aimed the strike at GM’s Wentzville Assembly Plant in Missouri; the Stellantis Toledo Assembly Complex in Ohio; and Ford’s Michigan Assembly Plant in Wayne, Mich. (but only the final assembly and paint shops there).

“We’ve been available 24/7 to bargain a deal that recognizes our members’ sacrifices and contributions to these record profits. Still, the ‘Big Three’ failed to get down to business,” Fain said in the video.

“If we don’t make serious progress by noon on Friday, Sept. 22, more locals will be called on to stand up and join the strike,” Fain added.

The union resumed talks with the automakers on Saturday, according to a report in the New York Times.

When contacted by SMU, spokespersons for GM, Ford, and Stellantis pointed to statements referencing that the automakers continue to bargain in good faith and seek an agreement.

Ford

“Our production system is highly interconnected, which means the UAW’s targeted strike strategy will have knock-on effects for facilities that are not directly targeted for a work stoppage,” a spokeswoman for Ford told SMU on Monday.

On Sept. 15, approximately 600 employees at the Michigan plant were told not to report to work, according to the spokeswoman. Only the final assembly and paint shops at the plant are on strike.

However, the spokeswoman noted: “This is not a lockout.” She added that this layoff is a consequence of the strike at the Michigan Assembly Plant’s final assembly and paint departments.

The components built by these 600 employees use materials that must be e-coated for protection. E-coating is completed in the paint department, “which is on strike,” the spokeswoman said.

The plant makes the Ford Bronco SUV and the Ford Ranger pickup truck.

Before the strike occurred, the Dearborn, Mich.-based automaker said in a Sept. 14 update that it “remains committed to reaching an agreement that rewards our employees and protects Ford’s ability to invest in the future.”

General Motors

GM announced that 2,000 workers would be temporarily laid off.

“It is unfortunate that the UAW leadership’s decision to call a strike at Wentzville, (Mo.), assembly has already had a negative ripple effect, with GM’s Fairfax assembly plant in Kansas and its 2,000 team members expected to be idled as soon as early this week,” a spokesman for GM told SMU on Sept. 18.

A shortage of critical stampings supplied by Wentzville led to the furlough, the spokesman said.

“We are working under an expired agreement at Fairfax. Unfortunately, there are no provisions that allow for company-provided SUB-pay in this circumstance,” the spokesman added.

The spokesman noted that the effects of a strike negatively impact customers, suppliers, and the surrounding communities.

The spokesman continued that the automaker will continue to bargain in good faith with the union to reach an agreement. Meanwhile, the Detroit-based manufacturer said its priority is the safety of its workforce.

For Netherlands-based Stellantis, the UAW has targeted the Stellantis Toledo Assembly Complex in Ohio. Toledo Assembly makes the Jeep Gladiator and the Jeep Wrangler.

“The union received a substantive offer from the employer minutes before the deadline and bargaining is continuing throughout the night,” Unifor said in a statement.

However, the union also noted that its members would remain ready to strike.

Separately, Ford issued a press release on Tuesday regarding the deadline extension.

“We will continue to work collaboratively with Unifor to create a blueprint for the automotive industry that supports a vibrant and sustainable future in Canada,” Steven Majer, VP of human resources of Ford Motor Co, of Canada, said in the statement.

Unifor’s counterpart in the US, the United Auto Workers (UAW) union, is currently on strike against all “Detroit Three” automakers — Ford, General Motors, and Stellantis.

Unifor took a more traditional approached. It selected one automaker, Ford, as the targeted automaker in labor negotiations.

The Canadian union’s membership is smaller than that of the UAW. So is the number of workers that it could call on to go on strike.

Unifor represents approximately 5,680 auto workers at Ford in Canada. The UAW represents roughly 150,000 across the Big Three, according to the Detroit Free Press.

The Pittsburgh-based steelmaker reported Q3’23 earnings guidance of $1.10 to $1.15 for adjusted net earnings per diluted share. This is down from $1.92 in Q2’23 and $1.95 in Q3’22.

The company’s Q3 adjusted ebitda is expected to be ~$550 million.

“We are on track to safely deliver a strong third quarter,” U.S. Steel president and CEO David B. Burritt said in a statement.

“Today’s guidance also reflects the expected impact on third-quarter financial results from the United Autoworkers union strike announced earlier this month,” Burritt added.

U.S. Steel on Monday announced the temporarily idling of blast furnace ‘B’ at its Granite City Works near St. Louis. The company has said the move was because of the UAW strike.

Meanwhile, the start-up this quarter of the non-grain oriented electrical steel line at Big River Steel, U.S. Steel’s EAF mill in Arkansas, continues as planned “with first coil expected by the end of the month,” Burritt said.

Also, U.S. Steel recently completed the pig iron caster at its Gary Works in Indiana. The plant is “consistently delivering low-cost pig iron to our electric arc furnaces at Big River Steel,” he continued.

Burritt said he expects the company to end the third quarter with cash on hand of ~$3 billion.

Q3 guidance for U.S. Steel’s individual segments is below:

Flat Rolled

The company said adjusted ebitda is expected to be “broadly in line with the second quarter.”

Despite falling spot prices, “average selling prices are expected to be slightly higher than previously anticipated on our July earnings call.”

U.S. Steel said that trend was a “key driver to the better-than-expected performance” in the segment. Also, its broad customer base has “kept its order book resilient.”

Mini Mill

Q3 adjusted ebitda for the segment – which is comprised of Big River Steel – was forecast to be lower than Q2 on lower selling prices.

But Big River Steel did benefit from better-than-anticipated volumes as well as lower raw material costs, U.S. Steel said.

Europe

Q3 adjusted ebitda for this segment – comprised of U.S. Steel’s mill in Kosice, Slovakia – is also expected to be down from Q2.

“Economic headwinds in the region and typical seasonal slowdowns are expected to result in lower average selling prices and a decline in shipment volumes,” U.S. Steel said.

“These headwinds are expected to be partially offset by lower raw material costs in the quarter,” the company added.

Tubular

Adjusted ebitda is expected to be down from Q2 in this segment. But the company said it nonetheless remains “well above historical levels.”

“Softer market prices and demand as distributor inventory rebalances are expected to be the primary drivers of sequentially weaker ebitda,” U.S. Steel said.

Correction: Due to an editorial error, an earlier version of this story mistakenly listed “Q2” earnings guidance in the headline. That has been corrected to reflect that guidance was for the third quarter.

The mill capability utilization rate for the week was 76.2%, up from the week prior’s 75.7%. However, YoY, capability utilization was down from 2022’s 76.4%.

AISI said that the adjusted year-to-date raw steel production through Sept. 16 was 63,298,000 tons, with a capability utilization rate of 76%. That is down 1.6% from the 64,316,000 tons produced during the same period one year prior with a capability utilization rate of 79.4%.

• Northeast – 135,000 (up 3,000 tons)
• Great Lakes – 571,000 (up 16,000 tons)
• Midwest – 223,000 (up 4,000 tons)
• South – 737,000 (down 7,000 tons)
• West – 67,000 (down 4,000 tons)

Both companies agreed to potentially increase the share of scrap in the near future, “which would reduce the carbon footprint even further,” the Germany-headquartered automaker said in a statement.

“In line with the company’s local-for-local approach, the supply agreement in the United States is part of a global effort to decarbonizing the Mercedes-Benz steel supply chain and follows several agreements on the procurement of CO2-reduced and almost CO2-free steel in Europe,” Mercedes added.

The Fort Wayne, Ind-based steelmaker’s product is made using electric-arc furnace (EAF) technology and “will use electricity from 100% renewable sources,” according to Mercedes.

For many steelmakers, switching from integrated steelmaking to electric-arc furnace (EAF) steelmaking is part of their plans to help meet those goals and set up a cleaner and more sustainable world for future generations.

Sault Ste. Marie, Ontario-based Algoma Steel chose this route, embarking on its strategic transformation in 2021 by beginning to construct two new EAFs to replace its No. 7 blast furnace steelmaking operations.

At Reuters’ Industry Transition 2023 conference in Pittsburgh last week, Algoma’s CEO Michael Garcia explained the compelling business case for the Canadian steelmaker to make the switch.

Algoma’s blast furnace and coke ovens were facing the end of their lives and the company had some decisions to make, he said. It would cost several hundred million dollars to reline the BF and to bring the coke ovens into compliance with Canadian standards.

Switching to the EAF route, although still an enormous investment, would allow the company to increase its steelmaking capacity, producer greener steel, and operate with a smaller and more efficient workforce, Garcia said.

The steelmaker was also in a “very advantageous cash position after years never before seen in the steel industry,” he explained.

Additionally, he said the Canadian “government was completely on board,” committing to develop the electrical grid and infrastructure in Sault St. Marie where the steelmaker operates.

For the EAF project, Algoma has received CDN $220 million in low-cost financing from the Canada Infrastructure Bank and CDN $200 million in funding from the Net Zero Accelerator initiative of the Federal Strategic Innovation Fund.

Garcia said the switch would utilize cleaner energy and result in cheaper steel production. And with the mill’s location on the Great Lakes key to easily sourcing raw materials – scrap and virgin metallic units – “the option was pretty much staring us in the face and it made a lot of sense,” he explained.

When asked if there will be demand for the greener steel it will produce via EAFs, Garcia said the need for steel is not going away any time soon.

“Fundamentally, the world needs steel for continuing to build our infrastructure,” he said, noting that it will be a key material in the transition to a cleaner and greener economy.

Algoma’s steel is also in automobiles, electric vehicles, trash trucks, cement trucks, riding lawn mowers, OCTG drill pipe, wind towers, and solar farms, he said, naming just some of the many uses of the critical material.

“The fact that we’re expanding capacity shows we’re confident there will markets for that steel,” he noted.

More and more customers are asking just how green the materials they’re using are and what exactly the emissions associated with it are. “We believe that will play a bigger and bigger choice in the buying decisions of people,” Garica commented.

Coinciding with Garcia’s appearance at the conference, Algoma released its first ESG report.

“The scale and magnitude of the transformation underway at Algoma necessitate that ESG factors play a foundational and critical role in our business strategy, processes and practices. Becoming a North American leader in green steel, means becoming a leader in ESG – and the work underway at Algoma today is designed to help us achieve both goals,” Garcia said in a statement with the report’s release.

Focusing on ESG is one of the four pillars of Algoma’s strategic direction, according to the report. The others include operational and capital improvements, financial discipline, and strategic partnerships.

At the conference, Garcia said “radical collaboration” is needed for all companies to help reach their net zero carbon goals by 2050.

“How do we think and work differently?” Garcia asked. “At the end of the day, it’s going to take everybody working together in new and different ways to achieve this.”

The report reveals Algoma’s product mix in fiscal 2023 was 81% hot-rolled sheet, 10% plate, and 8% cold-rolled sheet. Approximately 43% of its sales went to the transportation and logistics sector (that includes 25-30% automotive), 29% to manufacturing and construction, 17% to distribution, and 11% to tubular. More than half (59%) of its sales were to the US, while 40% stayed in Canada.

“Following the announcement of UAW strike actions, we are executing our risk mitigation plan to ensure our melt capacity is balanced with our order book,” a company spokeswoman said in an email to SMU.

“As a result, we have decided to temporarily idle blast furnace ‘B’ at Granite City Works and are reallocating volumes as needed to other domestic facilities to efficiently meet customer demand,” she added.

Background

Granite City has two blast furnaces: ‘A’ and ‘B’. The ‘A’ furnace was indefinitely idled in April 2020, according to SMU’s blast furnace status table. An idling of the ‘B’ furnace means there would be no melting at the mill.

The plant makes hot-rolled, cold-rolled, and coated sheet for customers in the construction, container, pipe and tube, service center, and automotive sectors, per U.S. Steel’s website.

CRU principal analyst Josh Spoores said at the outset of the strike that work stoppages could lead to multiple furnace outages. That’s because automotive is one of the most concentrated sources of steel demand.

“Additionally, we will likely see the extension of other maintenance outages that are already taking place,” Spoores said at the time. “Mills must cut back on production in order to keep sheet prices from crashing.”

Note that several mills are taking planned fall maintenance outages expected to remove as many as 1 million tons from the market between roughly now and Thanksgiving. Those outages could be extended.

Furnace Status

SMU has updated its blast furnace status table for U.S. Steel to reflect the change at Granite City.

U.S. Steel will have only six blast furnaces operating at just two US mills once Granite City B is idled: two at its Mon Valley Works in western Pennsylvania and four at its Gary Works in northwest Indiana.

The table above does not include U.S. Steel’s mill in Kosice, Slovakia.

The company’s results from its steel operations are expected to be “significantly lower” than Q2’23. SDI cited “metal spread contraction” as lower flat-rolled steel tags more than offset cheaper scrap costs.

“Steel shipments are expected to be comparable to sequential second-quarter volume, excluding lost volume related to Sinton’s unplanned July outage,” the company said in a statement.

SDI added: “Steel order activity remains solid.”

SDI restarted its Sinton, Texas, hot strip mill at the beginning of August after a month-long unplanned outage.

The steelmaker said results from its metal recycling operations are expected to be down from Q2 due to “lower volume and metal spread compression as pricing declined throughout the quarter.”

SDI’s steel fabrication operations are also expected to be lower in Q3 vs. Q2. The company cited “lower shipments and metal spread compression as realized selling values declined and steel input costs increased in the quarter.”

Flat Rolled

US service center flat-rolled steel inventories eased back in August with stronger shipments. At the end of August, service centers carried 54.1 shipping days of supply, according to adjusted SMU data, down from 56.1 shipping days of supply in July. The amount of flat rolled on hand in August represented 2.35 months of supply, down from 2.80 months of supply in July.

August had 23 shipping days, while July had 20. Inventories typically decrease in August with higher daily shipping rates, however, inventories this August were slightly higher than expected. Intake of flat-rolled steel at service centers – which is calculated by taking the latest inventory volumes and subtracting the previous month’s total inventory and then adding the total shipments – was at the highest level since January.

The amount of flat-rolled steel on order swelled in July and then eased back in August. The amount of flat-rolled steel on order represented 71.8% of inventories in August, down from 76.4% in July.

Most service centers have said that they are maintaining inventory. The latest SMU survey published Sept. 15said 65% of service centers were maintaining inventory while 35% were reducing inventory. The latest survey also found that 59% of service centers said their manufacturing customers were maintaining orders, while 41% said they were reducing orders.

We will be watching to see if demand gets more of a seasonal boost in September, though our expectations will change with an extended United Auto Workers union strike. If the strike lasts a week or longer, we could see service center shipments fall quickly in September and inventories rise.

Plate

US service center plate inventories edged up in August with slower plate shipments. At the end of August, service centers carried 61.2 shipping days of plate supply, up from 60 days of plate supply in July. Plate inventories at the end of August represented 2.66 months of supply, compared to 3 months of supply at the end of July.

Unlike sheet, which saw the typical seasonal boost in shipments in August, the daily shipping rate for plate declined 2% month-on-month (MoM). In absolute terms, plate inventories were flat (MoM). Service centers have been working to reduce plate inventories in line with slowing demand, though with the drop-off in shipments these last couple of months, not all were successful. Some still said they viewed their inventories to be heavy – especially considering declining prices.

Service centers’ total shipping days of plate supply on order at the end of August was down from July. The plate on order at the end of August represented 59.3% of inventories, down from 63.9% in July.

With some service centers’ resale prices falling below replacement costs and softer demand indications, service center contacts said they will continue to pare down their inventories. The amount of material on order fell for the fifth consecutive month in August. Increasing domestic supply, competitive import prices, and short lead times are also adding to bearish outlooks.

The index, which compares lead times and demand, is a diffusion index derived from the market surveys we conduct every two weeks. This index has historically preceded lead times, which is notable given that lead times are often seen as a leading indicator of steel price moves.

An index score above 50 indicates rising demand and a score below 50 suggests declining demand. Detailed side by side in Figure 1 are both the historical views and the latest Steel Demand Index.

Overall market sentiment remains mixed but the unprecedented strike at union-represented automakers remains the wildcard, even if it is at best temporary. While most agree that demand is down, especially for HRC, it seems cold-rolled, coated, and plate products have also followed.

SMU’s latest check of the market on Sept. 12 placed HRC at an average of $690 per ton ($34.50 per cwt) FOB mill, east of the Rockies, down $20 per ton vs. the prior week. Hot band is now down $470 per ton since reaching the recent high of $1,160 per ton mid-April.

Ongoing and upcoming mill outages have helped keep lead times at bay, and are likely a reason for the rise of material on order, even as service center inventories saw a boost in July and a slight correction in August.

With lead times currently stretching into Q4, upcoming maintenance outages or production cuts are likely helping prices and lead times from running downhill. With no real boost from the summer slowdown, the final quarter of the year could easily mimic the slowdown seen last year near the end-of-year holidays.

SMU’s demand diffusion index has, for nearly a decade, preceded moves in steel mill lead times. (Figure 2 shows the past five years.) Historically, SMU’s lead times have also been a leading indicator for flat-rolled steel prices, particularly HRC prices. (Figure 3 features the past five years.)

It’s still important to keep a close eye on lead times. While they have been in a holding pattern for the better part of the past four months, they did slip a bit, according to our latest check of the market. With scrap prices down in September and the UAW in an unprecedented strike against Ford, General Motors, and Stellantis, flat rolled prices appear to have little support in the interim.

Our hot rolled lead times averaged approximately 4.71 weeks this week, down marginally from 4.90 weeks in late August. They remain far from a recent high of 6.69 weeks in mid-March. Lead times have been hovering around the 4.5-week mark since roughly mid-June.

Note: Demand, lead times and prices are based on the average data from manufacturers and steel service centers who participate in SMU’s market trends analysis surveys. Our demand and lead times do not predict prices but are leading indicators of overall market dynamics and potential pricing dynamics. Look to your mill rep for actual lead times and prices.

Where do things go from here? To answer that, it might be worth considering the past.

A Look Back

Let’s look at the rhetoric of UAW president Shawn Fain. Beyond the fire and brimstone and biblical analogies, there’s the name itself: The “Stand Up” Strike. Fain said explicitly that this hearkens back to the “Sit Down” strikes that occurred during the Great Depression.

In 1936, GM workers started to occupy plants. Doing this “protected (the workers) from both violence and weather as well as from the threat of being replaced with other workers unwilling to go along with the strike,” according to an article in the Library of Congress. After 44 days of striking, GM announced a deal. Workers at other companies soon took notice of the success. In the space of two weeks, 87 sit-down strikes occurred in Detroit alone. UAW membership swelled.

Standing Up in 2023

The UAW is employing a different tactic this time. The union is targeting specific plants across all three automakers vs. targeting one manufacturer. Plants can be struck at any time, and the UAW reserves the right to call a general walkout if it chooses to. Fain has changed the rules of the game. For anyone along the supply chain making contingency plans, this “flexibility” complicates matters.

Two things stand out: market share and electric vehicles. GM, Ford, and Chrysler had a combined market share of more than 85% through the 1960s, according to an American Enterprise Institute (AEI) article from 2019. It didn’t go below 50% until 2008, the article added. Also worth highlighting: One of the “Big Three” is now owned by Netherlands-based Stellantis. Even hallowed US companies can change ownership.

Plus, automakers such as Nissan, Honda, and Toyota run non-union plants in North America. So, although Detroit still is Motor City, the “Big Three” are no longer the only game in town, and it’s been that way for a while.

In some respects, it’s the very notion of Motor City that’s at stake. What happens to UAW workers when the gasoline engines that powered Detroit’s rise are no longer necessary?

The internal combustion engine (ICE) itself has stiff competition coming down the pike from EVs. Managing the EV transition successfully for workers is one of the UAW’s concerns. For that transition to occur, though, a lot depends on the infrastructure to sustain it. And that means government.

The White House Responds

Automobiles depend on roads. And EVs depend on electricity. Charging stations, fortifying the current electrical grid, and providing enough power to match the uptick in EVs are areas where all levels of government will need to be involved. The federal government and many state governments already have subsidies in place for EVs. But that fundamental infrastructure transformation has not yet taken place. As the automakers move forward, it’s clear the government will be involved in some fashion. I hope it will mean a guiding a path vs. something akin to the auto bailout of 2008.

Regarding the strike, so far President Biden has voiced his support of the UAW’s right to take action, according to a report from USA Today on Friday. Further, he said union members “deserve a contract that sustains them and the middle class.”

So in the face diminished market share vs. the last century, competition from non-union workers, and EV transition, what does that mean for a resolution to this strike? Beyond that, how much of a role will the government take behind the scenes – and how do election-year politics factor into that? Hmmm…. I think that question could even stump the Magic 8-Ball SMU used to answer tough question at Steel Summit last August.

Steel 101 Goes to South Carolina

SMU will take its Steel 101 workshop on the road to Charleston, S.C., on Oct. 24-25. The workshop will include a tour of Nucor Steel Berkeley.

Those new to the industry will learn how steel is made in the morning on the first day of the course. They’ll then see it being made in the afternoon at Nucor – an experience that really makes that knowledge stick.

Steel 101 is also a great refresher for those looking to brush up on their industry knowledge. In addition to steelmaking, we’ll cover key end markets, coating extras, pricing and futures, and a whole lot more.

Attendance is limited. So don’t miss out, register here!