US sheet prices are under pressure from high service center inventory levels, causing domestic mills to aggressively lower prices to secure limited buying interest. This pressure might increase as we expect to see import levels rise over the near term from orders placed months prior when the US market was substantially higher than other areas of the world.

Import attractiveness this month has fallen for HR coil due to its rapid price decline domestically. However, issues at some mills have kept the CR coil market tighter. Buyers report that some mills are unable to make deliveries of CR coil until June or July, which will likely drive some buyers to import material instead. The latest offers we have seen for CR coil from Asia to the Gulf Coast range from $1,000-$1,070 /short ton (st) FOB truck, which is about $200/st lower than current domestic transaction levels. HR coil offers are markedly less competitive at $850-870/st FOB truck.

For longs, import volumes remain limited. Higher costs globally coupled with long lead times are keeping the attractiveness of imports low. Market participants for rebar report that the spread between import and domestic prices is not high enough to compensate for longer lead times for imports.

In South America, the Brazilian government is still analyzing mills’ requests to increase import duties from 12% to 25%. Meanwhile, in February, the government made minor adjustments to import duties, raising the percentages by 1.2-1.6% for a few selected long products.

Brazilian slab export prices declined on falling US HRC prices

Brazilian slab export prices decreased m/m by 4.2% from $710/per metric ton (mt) to $680/mt FOB Brazil. Brazilian sellers attempted to keep prices stable but falling US HR coil prices put downward pressure on slab export prices. Brazilian producers continue to have idle capacity amid low prices due to the pressure from increased import levels into the country.

In terms of trade, there was a 23% month over month (m/m) increase in January to 575,000 mt, which, however, is in line with the volume recorded in January 2023. The main export market was North America with 73% of the volume. We have seen an increase in exports to Europe, accounting for 19% of the volume or 108,000 mt, with the remaining volume exported to South Korea.

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

The union noted that the practice of offshoring manufacturing jobs has often been a tactic used by firms. “Corporations use the threat of offshoring jobs as a cudgel to beat back worker discontent and organizing efforts in the US.”

UAW said that since the North American Free Trade Agreement (NAFTA) in 1994, “Mexico’s automotive workforce has grown seven-fold.”

The project comes amid the UAW’s push to unionize non-union auto workers in the US.

Can outages move the needle again?

Some of you have brought to my attention approximately week-long planned maintenance outages at US EAF sheet mills slated for April or May. You also noted ongoing, but typically short, outages at integrated mills. Fall maintenance outages were partly responsible for the price spike that occurred last fall. Could spring maintenance outages play a similar role this year?

Maybe. But we’re in a market that has been mostly shaking off outages – planned or otherwise. Take the unplanned outage at Canadian flat-rolled steelmaker Algoma in January. In the past, that might have tightened up – or at least spooked the market – and kept prices from sliding. We didn’t see that this time.

Another example: There was a lot of talk last year about when Mexican flat-rolled steelmaker AHMSA might restart. It hasn’t. Yet the continued absence of an important steelmaker from the North American market does not seem to be making any waves. Perhaps it’s because newer capacity (SDI Sinton, for example) continues to ramp up and because expansions to existing capacity (North Star BlueScope, for example) are ongoing.

I also wouldn’t ignore the possibility of a slowdown in China, evidenced by sluggish iron ore prices despite supply disruptions. That could have impacts elsewhere. But I also know that, for most of you, that’s more of an abstract concern – especially if you’re continuing to see stable demand.

Stelco sees a price spike

Stable demand, combined with buyers on the sidelines, could lead to sheet a price spike – it’s just a question of when. That’s one school of thought. And Stelco CEO Alan Kestenbaum made the case for exactly that during the Canadian flat-rolled steelmaker’s earnings call last week.

“You get these rapid spikes followed by a rapid fall. The spikes are probably overstated, and the falls are overstated,” Kestenbaum said. “And what’s driving that is very, very definitively customer behavior.”

A lot of it has to do with import buying patterns, and Kestenbaum said customers probably aren’t buying much import now. “It’s about a six-month lead time. That’s not very attractive. It’s very risky, especially in a volatile pricing environment,” he said.

 “And so typically, what these buyers will do, they’ll wait. And what has happened now over the last two years is they wait till the last minute, and then they start buying all together,” he added.

Kestenbaum said that lack of buying, combined with a resilient economy, should set the groundwork for another spike. “Building is strong, oil and gas is strong, auto has been relatively stable. So all the end markets are there. Imports are going to start dropping because prices are falling, as it always does,” he said.

The likely result: “The buyers will come in rushing in all at once and start bidding up the price,” Kestenbaum predicted.

Yes, but back to timing

We’ve written about how the gap between foreign and domestic hot-rolled (HR) coil prices has narrowed. But the spread between domestic HR and domestic CR/galv remains wide (approximately $300 per short ton). And that between foreign and domestic tandem product prices is wider still.

Let’s use that six-month timeframe for imports as a rule of thumb. If that’s the case, US prices were high or rising into December. Does that mean imports will continue into June?

Also, I know some of don’t agree with the idea that price spikes are driven by buyers. You might say a more consolidated more domestic steel industry is just as responsible for those spikes – because North American mills now have more leverage to increase prices rapidly when the conditions are ripe to do so.

My guess is that will happen once big buyers come back into the market. That could initially lead to price indices falling, something that might keep buyers on the sidelines. The next move might be lead times stretching out despite prices at low levels – often the first sign of a recovery. Once that happens, I wouldn’t be surprised if we saw increases. But is that a late Q1 event, a Q2 thing, or not likely until lead times stretch past Labor Day?

Current events play a role too. We saw that two years ago when prices spiked after Russia invaded Ukraine in 2022. We saw it again last fall when the UAW strike distorted normal buying patterns. What black swans are you keeping an eye out for now?

I have my eye on a couple. But more on that it my next Final Thoughts. In the meantime, thanks to all of you for your continued support of SMU!

Steel 101

Our next virtual Steel 101 is less than a month away – on March 19-20. The course offers a great way for you to show new employees that you care about their career development.

It also puts them in touch with instructors with decades of experience who can help answer not only basic questions but also more sophisticated ones – whether they be about metallurgy, sales, or futures.

You can learn more and register here.

Background

A bit of history may be useful. The WTO came into being at the beginning of 1995. Before that, the General Agreement on Tariffs and Trade (GATT) was in force, but there was no real institution behind it.

The GATT was the institution. The GATT had a dispute settlement mechanism. Cases were filed and a panel of trade professionals (diplomats in Geneva generally) sat on these cases. In due course, the panel would issue its report; if the losing party did not like the result, it could effectively ignore it without significant consequences, other than public perception.

The Uruguay Round sought a better way. Disputes were heard by a panel of (usually three) trade diplomats. The cases started innocently enough, with a “request for consultations” by the aggrieved party. In due course, panels read briefs, heard arguments, then rendered a decision. If the losing party was unhappy, it could appeal the decision to the Appellate Body, a group of seven trade experts appointed with the consent of all WTO members, usually sitting in panels of three.

There were further proceedings if the losing party at that level failed to implement the decision in a timely manner. But, unlike the old GATT days, the decisions in the WTO had teeth, although the consequences were slow to develop.

When the US lost high-profile cases in the WTO, it complained about “judicial overreach”. The Obama administration even blackballed two Appellate Body members (American Jennifer Hillman in 2011 and Korean Seung Wha Chang in 2016), refusing to agree to their reappointment because of US disagreement with their decisions.

How things stand

Then, when Donald Trump took office, the US boycotted the appointment process altogether. This left the Appellate Body with no sitting members by 2019, a state that persists.

Now, with no functioning Appellate Body, countries that lose cases at the panel level file an appeal “into the void.” A decision will never be adopted because the final stage of the process is broken.

At the upcoming ministerial conference (known as “MC13” because it is the 13th conference since the creation of the WTO), there will be a communiqué but no real action. Draft papers have been circulated with several ideas for reforming the WTO dispute settlement process; but the key issue is and will remain that the US feels it has unjustly lost cases it should have won, especially in antidumping and countervailing duty (“trade remedy”) cases and the Section 232 tariffs imposed by President Trump and which remain in effect.

The WTO has found fault in many US trade remedy processes. The US is unique or at least unusual in many of its practices. For example, the US assesses antidumping and countervailing duties on a “retrospective” basis, meaning that final duties on imports subject to trade remedies are not calculated until after (frequently long after) the goods subject to those duties are imported. If an importer does not know whether the duty will be high or low, frequently the goods won’t be imported at all.

The US is the only major country of the 70 or so countries that have trade remedy laws that handle it this way. Most other countries calculate definitive duties before goods are entered and adjust those duties on a prospective basis if conditions change.

The Section 232 tariffs, which are assessed on a prospective basis, were challenged in the WTO on another ground—the absence of a “war or other emergency in international relations”. Without such an emergency, Article XXI of the GATT does not permit countries to invoke national security to abrogate their obligations regarding negotiated tariff levels.

The brass tacks

While the US has argued that “for more than 70 years” it has asserted the right to act in its perceived national security interests without having to comply with the language of Article XXI of the GATT, recent WTO panels have decided that the text of the agreement is dispositive.

The US has appealed seven adverse decisions into the void.

These are, to be sure, difficult and politically charged issues. The Appellate Body, of course, has never ruled on the Section 232 cases, because it became non-functioning before the panel rulings against the US.

The Ministerial Conference this coming week will have no breakthroughs, and the dispute settlement system will continue to be non-functioning for some time to come. In that posture, the US and many other WTO members will have no avenue to remedy violations of WTO agreements.

In the current climate of economic nationalism, this has already begun to spread to other agreements and institutions. Putting the system back together will get harder.

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

“Our overall strategy through M&A as well as cap-ex, we like all three of our business segments, so our intent is to grow all three of them,” CEO Richard Marabito said in an earnings conference call on Friday.

Olympic acquired Conway, Ark.-based Central Tube & Bar (CTB) in October last year.

“We’ve had, probably until CTB, we had a little bit of a greater focused success rate in terms of specialty metals and carbon on the acquisition side,” Marabito said. “That’s why we were thrilled really to add CTB to the mix.”

He said that Olympic is now five years into a strategy to build a more diversified company that “delivers results and creates shareholder value, even under challenging market conditions.”

Marabito noted that during that time, Olympic “successfully integrated six acquisitions, each of which has added a unique value-added offering to our portfolio.”

He pointed out that in January, the company announced the promotion of Zach Siegal to the new role of president of manufactured metal products.

“Zach has been with the company since 2007, and for the past six years, he’s played an instrumental role in our acquisition strategy,” adding that Siegal will remain involved in the company’s mergers and acquisition activity in the future.

Regarding what type of companies they are looking for, Marabito said Olympic is “gravitating towards those types of companies that really have a consistent return, high-return companies that we can add a good amount of synergy to through our existing operations.”

As that goes on, Marabito said, “We’re going to continue to do what you saw us do, which is add stand-alone fabricating facilities adjacent to some of our metal fabricating facility. So we like that model as well.”

Mexico should take immediate and meaningful steps to address the matter, she told Mexico’s secretary of economy Raquel Buenrostro in a virtual meeting.

She noted the US has the right to reimpose 25% import duties on steel and 10% on aluminum, the so-called Section 232 tariffs, suspended under the USMCA free-trade agreement. Talks between the two countries continue.

Mexico’s steel sector body Canacero refuted suggestions that Mexico acts as a conduit for steel going into the US from other countries, sometimes referred to as triangulation.

“It is completely false that there is a lack of cooperation and transparency on the part of Mexico; our country has openly collaborated with the United States in defending the North American region against triangulation and unfair trade practices in the steel sector,” media in Mexico quoted Canacero as saying.

“Mexican steel is exported to the United States with legality, transparency, competitiveness, and respect for international trade rules, particularly those established in the T-MEC.” That is the Mexican abbreviation for USMCA.

Canacero contended the US benefits by exporting 4.1 million metric tons (mt) of finished steel products to Mexico, approaching double the 2.3 million mt that it imports from Mexico, and added: “Forty-nine percent of US steel exports are to Mexico, with a $3.2-billion trade deficit.”

“Our exports of finished products to the United States only represent 2.5% of their market, while for many years they have held 13.9% of our domestic consumption captive,” Canacero said.

New recycling projects to boost scrap demand

Recently, two projects come to mind when it comes to increasing recycling capacities in Europe. One was announced by Constellium last year and involves a 130-million euro investment at its rolling mill in Neuf-Brisach in France. The investment is expected to provide an additional 130,000 mt of recycling capacity by 2025 to serve the packaging and automotive markets. The Neuf-Brisach facility, established in 1967, is already one of Constellium’s largest plants with a production capacity of 450,000 mt annually. There was also the announcement earlier this year that a grant to support this project was provided as part of the French investment program – France 2030.

Another project was announced by Hydro in early February. The Norwegian producer has announced an investment of 180 million euros to construct a new state-of-the-art aluminum recycling plant in Torija, Spain. The new recycling plant will produce 120,000 mt of low-carbon recycled aluminum per year in the form of aluminum extrusion ingots. The products will serve a wide range of industries including transport & automotive, building and construction, renewable energy installations, and consumer durable markets. The investment is pending final build decision, which is expected in H2’24. Production is expected to commence in 2026.

Even if those substantial investments do not translate into higher demand right away, it should increase the industry’s awareness of having to secure sufficient scrap. For now, demand is weak so prices are only firming up gradually, but when demand starts recovering, the scrap market will be the first to get tight. For secondary grades, this will be made faster by a growing appetite for scrap from Asian countries, especially China as it is rapidly expanding its secondary industry. For primary grades, it is more the fact that operating rates have been low since demand weakened, and therefore less scrap than usual has been generated domestically. Overall, we estimate the need to restock will emerge sooner than later and prices will continue increasing gradually in anticipation of better demand in the second half of this year.

Century’s loss widens

US-based Century Aluminum ended last year with a net loss of $43.1 million – three times greater than the negative $14.1 million that was observed in 2022. Turnover fell 21.2% to $2.19 million, chiefly as a consequence of lower realized aluminum prices and an 8.8% decline in shipments to 701,000 mt.

The Chicago-headquartered company attributed the higher net loss to losing $68.3 million on forward derivative contracts – $16.7 million related to a power equipment failure at the 1.42-million-mt-per-year (y) Jamalco alumina refinery in Jamaica; and $9.0 million in curtailment costs at the 252,000 mt/y Hawesville smelter in Kentucky; plus, a $6.6-million increase in share-based compensation costs driven by market inputs. Those negative factors were partially offset by costs being $26.2 million lower.

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

The administration may also be weighing additional tariffs on steel and aluminum imports from China, the sources added.

“The complication for Nippon Steel is that regulators may look unfavorably on whether its acquisition of U.S. Steel could allow more access to US markets for Chinese-sourced steel, while the administration uses tariffs and other measures to keep steel from being dumped on the American market,” the Bloomberg article stated.

However, NSC’s Chinese operations are very limited, it said in an email statement to SMU, representing less than 5% of its global production capacity. Globally, NSC has an annual steel production capacity of ~73 million short tons. Acquiring U.S. Steel would add another 22.4 million st to that figure. The Tokyo-based steelmaker aims to grow its global steelmaking capacity to 110 million stpy (100 million mt).

Additionally, NSC noted that it does not operate any primary operation upstream facilities in China, only downstream businesses.

“Our operations in China – including joint ventures with Chinese partners – have no control over our operations or business decisions outside of China, including in the US,” NSC stated.

The company added that, through its acquisition of the Pittsburgh-based steelmaker, its “goal is to enhance U.S. Steel’s competitiveness in the global steel market and address the industry’s overproduction and overcapacity issues – largely driven from China.”

When asked for comment, U.S. Steel deferred to Nippon on the matter.

The number of active rotary rigs in the US expanded by five to 626 from the previous week. Oil rigs were up by six to 503. Gas rigs were down one to 120, while miscellaneous rigs were flat at three.

The count of active US rigs is down by 127 from the same week last year when 753 rigs were in operation, according to the data from the oilfield services provider. There are 97 fewer oil rigs and 31 fewer gas rigs in operation, while the miscellaneous count is up by one to two.

Canada rigs

The number of operating oil and gas rigs in Canada moved down by three to 231 vs. the week prior. Oil rigs fell by three to 141, while gas rigs were unchanged at 90.

Drilling in Canada is also lower year over year. There are 13 fewer rigs running now vs. a year ago, with oil rigs down 17, and gas rigs up 4.

International rig count

The international rig count is updated monthly. The total number of active rigs during January was 965, up 10 from December and up 64 from January 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.

Fields will succeed current ATI CEO Robert S. Wetherbee, who will now serve as executive chairman for the company. Wetherbee was named president and CEO in 2018 and chairman of the board in 2020.

“Kim is ready to lead this organization. Her demonstrated operational and commercial success makes her proven to perform. As ATI’s next CEO, Kim will further accelerate our growth and value creation,” Wetherbee commented in a statement.

ATI is a specialty metals and materials producer serving the aerospace, defense, oil and gas, chemical, electrical energy, and medical sectors.

The m/m improvement was driven by a 14.5% increase in Chinese crude steel output, even though the rest of the world (RoW) also improved.

Regional breakdown

China, the world’s top steel producer, saw its m/m gain reach an output of 77.2 million mt in January. Despite the near 15% increase m/m, China’s production was down 2.9% y/y. January’s output was still its third-lowest production total in more than a year.

Meanwhile, steel output in RoW also improved vs. December, up 3.8% m/m and up 7.8% y/y to 70.9 million mt in January.

Regionally, the European Union saw the highest m/m gain in output, increasing by 12.1% to 10.2 million mt. Asia and Oceania’s production rose by 11.6%, followed by South America’s 6.3% gain, Africa’s 5.3% increase, and Russia, other CIS’s 1.4% rounded out regional gains.

North America’s steel output was down 1.1% m/m in January at 9.2 million mt, but up 1.1% vs. the year prior, according to worldsteel’s figures.

Regions with lower on-year production included Europe, Other (flat at 3.9 million mt), and the Middle East (-4.1% at 4.7 million mt).

Rippey has had a distinguished career in the steel industry, having served as chairman of the board, president, and CEO of ArcelorMittal USA. Prior to joining SunCoke in 2017, he was a senior advisor to Nippon Steel & Sumitomo Metal.

“We thank Mike for his outstanding service and substantial contributions to SunCoke,” said company chairman Arthur F. Anton on behalf of the board. “During his tenure, he significantly restructured and strengthened the organization and reduced SunCoke’s risk profile. Mike has been, and remains, a great asset to our company.”

Katherine T. Gates will take over as SunCoke’s new CEO in May. Since the start of 2023, she has served as president of the company, a position she will continue to hold alongside the chief executive role. Gates has more than 10 years of executive experience with the Lisle, Ill.-based company, and previously worked in the field of private law.

Regarding Gates, Anton said, “The board is pleased to announce Katherine’s promotion to chief executive officer as the result of a deliberate and well-executed succession planning process. … She is a successful leader with a strong execution orientation. She has the highest integrity and brings great energy to all she does.”

We have heard that Korean steelmaker POSCO would hot idle and maintain its BFs. This will lead to weaker raw materials demand in the region. In China, steel demand is ramping up after the Chinese New Year, but the demand outlook is bearish for the coming peak season. Without support from demand, steel margins are unlikely to improve, limiting the increase in steel production and consequently demand for raw materials.

In India, the market condition will be no better than others, with slow progress of infrastructure projects under tight budgets and high steel inventories continuing to restrict steelmakers’ operations. Altogether, this will keep raw materials demand low, but buying activity will gradually improve in most regions in tandem with steel demand recovery towards Q2. Importantly, the ‘Two Sessions’ meetings will be held in China in early March, so do watch out for any policy changes in the country.

Iron ore

Following the Chinese New Year holiday, the iron ore price has continued to decline despite persistent supply disruptions. The price fall was driven by pessimism in the market, which has overridden the fundamentals. Higher inventories have made the market less sensitive to supply disruptions, which has enabled the bearish steel demand outlook to weigh on iron ore prices. Supply will continue to face downside risks such as those from weather and maintenance, which will add a risk premium. Brazil will likely maintain strong shipments but rainy weather in the southern part of the country poses a downside risk. 

Australian outflow is expected to remain lower year over year (y/y), as the risk of tropical lows/cyclones and further maintenance-based disruptions could further impact outflow. Elsewhere, Ukraine and South Africa will have the same supply constraints as before, though the former has high potential for adding more volumes to the market. Meanwhile, Swedish miner LKAB will slowly ramp up outflow back to full utilization. The supply risks and disruptions will push the price to a more sustainable level of ~$130/dmt (dry metric ton) over the coming month. The bearish steel outlook and lack of restocking are the main downside risks to this.

Metallurgical coke and coal

Supply of metallurgical coal from top exporters including Australia, the US, and Canada has improved dramatically over the past month, rising to the top of the 2017-23 range. The continuation of this trend will put downward pressure on prices. This will be reinforced by weak restocking demand in India, Southeast Asia and Europe, which is expected to begin recovering in Q2’24 followed by an acceleration in H2’24. Combined with lower hot metal production in China, we expect the market equilibrium price to fall below $300/metric ton (t) in the coming month, and towards ~$250/t by mid-2024. However, further supply disruptions, especially from Australia, will keep seaborne prices near current levels. Meanwhile, another upside risk is the stricter prohibition of overproduction at coal mines in China.

With the third price cut realized in the Chinese coke market recently, we expect the Chinese coke export price to drop by another $10−15/t in the coming weeks and then remain stable. This is because coke margins are currently low and unsustainable. We forecast the price pressure from the ailing steel sector will be ultimately balanced by limited coking coal supply as well as the exit of high-cost merchant coke producers later in the year.

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

There was concern about domestic demand with sheet prices falling and at least one major mill outage in March. This could have a weakening effect on scrap prices. On the other hand, some scrap buyers are still seeking scrap, especially for #1 busheling in the Southeast region. It is unclear if there is enough supply of industrial scrap to go around.

Another concern is the decrease in prices for exports into Turkey. In recent days, European cargoes of HMS 80/20 to Turkey have dropped to $406 per metric ton (mt) CFR. The last cargo sold from the US was at $414/mt. This number could drop on the next round of sales, if there is no resistance from the export community.   

With the month of March approaching, the supply of obsolescent scrap should increase on into April as “spring cleanup” will be well underway. These are seasonally weak months for scrap. The scrap community seems to be expecting prices to fall in March and April, the uncertainty being by how much. SMU will continue to keep our readers updated on what actually transpires.

Recently, SMU sat down with Paul Balserak, the American Iron and Steel Institute’s (AISI’s) vice president of environment. Having previously worked at the US Environmental Protection Agency (EPA), he is uniquely placed to give some of the key takeaways from the new regulation.

Steel impact

With any new federal regulations coming down the pike, it’s often hard to sort out what exactly the impact for the steel industry will be, if any. The US industry is in a delicate balance, and more red tape could affect the cost of domestic steel vs. the rest of the world.

“Yes, I think the concern is that steel is a very competitive international market, and we’re in a country … where already at 12, we had the tightest PM controls in the world,” Balserak said. He noted that we are “more stringent already than Europe is.”

Balserak said that the background PM on average across the country is 8 micrograms per cubic meter, “and a lot of that comes from natural sources like wildfires or dust, which are sources that really can’t be regulated.”

“You can’t really regulate wildfires,” he pointed out. He noted the concern is “the only sources that can actually be forced by the government to try and reduce PM is industry.”

“It will create a bottleneck on expansions and siting of new plants and new capacity, and it will add cost to the existing operations because they now have to go through this onerous costly permitting program. And we’ll have to put on new controls that will be costly,” Balserak said.

Attainment vs. non-attainment areas

A thumbnail sketch of the new regulation is that the country is divided into areas roughly corresponding to the size of counties. Sometimes, the areas will overlap with the counties themselves. By the new standards, the areas will be either judged in attainment or non-attainment.

If you’re operating in an area that is classified as in non-attainment, in order to modify an existing permit or get a new permit approved, the process becomes much more complicated, according to Balserak. He said with the new standards, many urban areas in the US will become non-attainment areas.

“So the opportunities for increasing your capacity or expanding your plant in that area is going to be severely limited,”Balserak said.

“You have to model what your anticipated increase of PM emissions would be, and you have to find an offset somewhere, either on your site or another source in the non-attainment area that can lower their PM commensurate with your modeled increase to offset,” commented Balserak.

He also said you “have to meet what’s called LAER (lowest achievable emission rate), so technologies for meeting this PM level would be based on the most stringent technology available without considering cost.”

All domestic manufacturing would be affected by these new rules, including steel-intensive industries like automotive. The calculus of where to locate a plant could change, according to Balserak, as attainment areas would have less stringent permitting rules. But permitting even in many attainment areas will still be much more difficult under the new annual standard.

What’s next?

The next step is for the new EPA rule to be published in the Federal Register. From there, between EPA attainment demonstrations across the country, followed by state-commissioned programs on how to implement the standards, it will be a few years before any concrete change occurs.

However, Balserak noted that this is a final rule from EPA. He said next possible steps could be industry petitions for litigation. You could potentially ask EPA to reconsider specific issues or the effectiveness date of the rule. Still, he was quick to point out that AISI has not yet spoken to any of its members regarding this option, and no decisions have been made on this matter. More broadly, though, with the potential to affect the entire economy, this issue is definitely something for us to all keep our eye on. 

Thank you to everyone who shared your time and insights!

And if you don’t participate in our survey but would like to, please contact my colleague David Schollaert at david@steelmarketupdate.com.

Steel prices are moving lower. How do you expect prices to trend over the next three months, and why?

“Down for the next 30 days.”

“Down a bit more then flattening out. $800 per short ton (st) is a floor in my opinion.”

“Continue down – too much inventory in a slowing economy and cheap imports.”

“Likely drop over the next few weeks, and then it will flatten out.”

“Lower because everyone is talking them down – it’s self-fulfilling.”

“Lower because it’s an election year, and historically there is a pause in the steel industry during an election year.”

“It will move lower due to weak demand and good offshore inventories.”

“Prices will bottom out by May/June.”

“Down, down, down. I was always told coming up in this business that it is ‘feast or famine.’ That has definitely become the reality in the last five years.”

“Continuing lower until May, from import pressure on the one hand and scrap on the other.”

“Down into Q2 before a potential correction.”

“I think we will reach bottom shortly, then the mills will pull up. But, unfortunately, prices will be under pressure again come the summer slowdown.”

“We will hit bottom in Q1.”

“Prices will continue to move down through March. The mills will start to push back a bit harder come April/May.”

Is demand improving, declining, or stable – and why?

“Declining. High interest rates are slowing down the economy.”

“Demand is stable, which is great to report. I keep hearing automotive is soft, though, which is bad for everyone.”

“Demand is stable. I expect contract buyers to pull back some this month but to increase as contract prices ease over the next two months. Spot buying should also return.”

“February is slow.”

“We’re stable across the board.”

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

“No. Domestic price is falling.”

“Not now. Because US pricing is dropping fast and because of the lead times.”

“Less attractive due to price, lead-time, and quality concerns.”

“Imports are always priced better than domestic.”

“Yes, due to gap of pricing between domestic and offshore.”

“Imports for specialty products are competitive. But the lead-time risk is large given future price trends.”

“Import pricing is still attractive, albeit less so than a few months ago. Lead time remains the real hurdle.”

“Yes, but getting close to a breakeven in risk.”

“Yes and no. Yes on current price spread. But no due to lead time and falling domestic market.”

“The prices are attractive, but the lead times are not favorable.”

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

“Supporting scholarships for truck drivers.”

“How Section 232 has completely changed the US market, giving mills power to periodically starve the market and raise prices hundreds of dollars above the actual value of steel established on the world market.”

“Covid and other illnesses keeping people home and production down.”

“Who is going to buy Evraz North America?”

“We’ve seen more chatter on SSC M&A activity, which is good. I still am curious about AHMSA, though.”

“Outages that are planned for second quarter.”

“The lack of new import orders being placed for late Q2.”

I don’t agree with that last point. Scrap prices have been wobbly, sheet lead times have come in, and global prices were bound to (eventually) exert some gravity on US prices whether SMU wrote it or not. But I digress.

Then there is the question of when. Some of you tell me that prices will find a floor before Q1 is over. Others don’t think we’ll find one until June. And still others think the market will bottom, rebound, and then cycle down again as the summer doldrums approach.

I think a lot might hinge on when import volumes peak and begin to recede.

Here is one way to quantify it: The US imported 832,063 metric tons (mt) of flat-rolled steel in January (the highest figure since last June), or 26,841 mt per day. So far for this month, the US was licensed to import 507,357 mt, according to government figures last updated on Feb. 19. That amounts to 26,703 mt per day – roughly on par with January import volumes. When does that figure start to go down?

I’m guessing people ordered a lot on the import side in September and October, when they also ordered a lot from domestic mills. And the material ordered then explains why January and February import levels are high. Did big import buys continue into November and December as domestic prices rose? Or did they taper off along with domestic spot activity?

If you (correctly) expected that US prices and lead times were going to shoot higher last fall, it was a no brainer to order imports. Now, that calculation is a little less obvious. Case in point: Check out David Schollaert’s article on the spread between foreign and domestic HR prices. That spread is only $77/st now on average, down from nearly $300/st just last month.

Lead times are also a big hurdle for imports now. Import lead times are measured in months. Last fall, so were domestic lead times for cold-rolled and coated products. That’s no longer the case. You can order from domestic mills these days for a competitive price and a reasonable lead time.

My guess is that imports taper off faster than expected as US prices fall quicker than might have been anticipated. So count me in the camp that thinks domestic prices will drop, pop, and then cycle down again with the summer doldrums. Especially if demand remains stable, which most of the people we hear from say remains the case.

But I’m a little less sure on the demand side than I used to be. I’m hearing from some of you that higher interest rates are finally starting to bite. We’ve written a lot about CME HRC futures falling. And it’s not just steel that’s seeing prices drop on futures markets – just check out soy and corn. That’s not a great sign for agricultural equipment.

That’s not the only thing that caught my attention. Phil Hoffman has a good column today on the weak Japanese yen hurting the West Coast scrap export market. Japan has, as has been widely reported, tipped into recession. It has also fallen from the world’s third-largest economy to its fourth largest – behind the US, China, and Germany.

Meanwhile, iron ore prices have been weak after Chinese New Year. (We’ll have more on that in our next issue.) That’s not a great signal from the world’s second-largest economy. But maybe the US economy is a juggernaut big enough to shake it off. Or it’s got a fast enough car to get outta troubles abroad. (Auto sales were really strong in 2023.) We’ll see!

In the meantime, thanks to all of you for your continued support of SMU.

Olympic Steel’s earnings jumped in the fourth quarter, even as the company dealt with “significant” price volatility in hot-rolled coil.

The company on Thursday reported  net income of $7.4 million in Q4’23, up 87% from $3.96 million a year earlier on sales that fell 5.9% to $489.4 million.

Speaking about the full-year results, CEO Richard T. Marabito said in a press release, “Our pipe and tube business delivered its second most profitable year ever, and our carbon business showed its resiliency in navigating the pricing pressures of 2023.”

Regarding hot rolled, he said: “For the second year in a row, we withstood a hot-rolled carbon steel index pricing decline of more than 45% during the year.”

He noted that “despite significant pricing fluctuations, we continue to deliver on our commitment to achieve more consistent, profitable results.”

Looking ahead, Marabito was upbeat.

“As we head into 2024, Olympic Steel is stronger than ever,” he said. “We remain committed to our disciplines around working capital, operating expenses, cash flow and debt, while we seek opportunities to further expand our portfolio of higher-return, higher-value-add products.”

A breakdown of the company’s Q4 operating income by product is below.

“We have been actively evaluating opportunities to grow our company, all while staying highly disciplined on value and knowing when to say no,” Kestenbaum said on the call.

“We will remain active, but only where valuations are attractive and synergies are significant,” he added.

Inorganic growth

Kestenbaum noted that Stelco was active on several acquisition opportunities last year, but they “didn’t get there.”

“We don’t control M&A. We can’t force somebody to sell to us,” he commented on the call.

The CEO noted he’s learned a lot from the ongoing U.S. Steel sales process and continues to study the acquisition to see what can be learned from the sale’s valuation. When looking at Nippon Steel’s proposed nearly $15-billion buy of U.S. Steel, “whether it happens or not, clearly some assets in that package are attractively valued,” he said.

“I’m studying with interest some of the things that U.S. Steel has done very, very well. And I give them a tremendous amount of credit,” he said, for making decisions that may have caused them to face criticism.

“The management at Stelco is highly entrepreneurial … we look and try to study from what others have done successfully,” he said. That deal “has given us time to reflect on what we can do better to improve on the multiple we trade at compared to the very attractive price that was paid for U.S. Steel.”

On the call, Kestenbaum said one thing he learned from the M&A activity Stelco pursued last year was how remarkable the company’s access to capital really is.

“One of the things I learned from that endeavor was how attractive our business is to shareholders, lenders, their confidence in our track record, their knowledge that we’re not reckless, and that we know how to extract synergies,” he said.

Organic growth

Kestenbaum hinted the company could add some value-added output to its mill in Hamilton, Ontario, in the future.

“We’re not driven by awards and accolades from big auto manufacturers. … We get driven by profitability. And I think there’s more profitability in our downstream operations than what we’re currently doing,” he commented.

The company has initiated a review of those operations. He said the study is currently in the evaluation stage.

“We do have the facilities right here to do it. … Stay tuned. Maybe in the next quarter, we’ll have a bit more meat to put on the bones for you guys with a more specific direction,” he said.

Ryerson swung to a net profit in the fourth quarter, though revenue declined from the same period last year.

The Chicago-based service center group posted net income attributable to Ryerson of $25.8 million in Q4’23 vs. a loss of $24.1 million a year earlier on revenue that slipped 13.6% to $1.11 billion.

“Revenue during the period was influenced by seasonally lower volumes and easing average selling prices, which decreased 5.9% to 450,000 tons and 5.2% to $2,472 per ton, respectively, compared to the third quarter of 2023,” the company said in a statement on Wednesday.

A breakdown of shipments and average selling prices is shown below.

Tons shipped (in thousands)	Q4’23	Q3’23	Q4’22	Q/q change	Y/y change
Carbon steel	347	371	365	-7%	-5%
Aluminum	48	49	45	-2%	7%
Stainless steel	52	55	52	-6%	0%
Average selling prices (per short ton)
Carbon steel	$1,657	$1,744	$1,874	-5%	-112%
Aluminum	$5,021	$5,571	$5,978	-10	-16%
Stainless steel	$5,212	$5,527	$6,019	-6%	-13%

Eddie Lehner, Ryerson’s president and CEO, said, “Fourth-quarter volumes decreased across most of our end-markets due to holiday seasonality and ongoing destocking across nonferrous product lines.”

He added that for full-year 2023, “our end-market volumes mainly increased in our commercial ground transportation and oil and gas end-markets, while decreasing across most other industrial and consumer end-markets.”

Looking to Q1’24, Ryerson said it “expects normal seasonal demand conditions, with customer shipments expected to increase approximately 8% to 10%, quarter over quarter.”

The company said it anticipates Q1 revenue to be “in the range of $1.21 to $1.25 billion, with average selling prices increasing 1-3%.” 

But most West Coast suppliers are not accepting this … for now. However, an unconfirmed sale was made at $372/mt. Dealers maintain that no deals were done below $375-380/mt, and they are resisting selling. However, it is possible that the weaker players (those in constant need of cash) did break and sell at the lower $372/mt CFR Taiwan price.

Overall and throughout 2024 to date, the East/Southeast Asia ferrous export market has had a cap mainly due to the weakness of the Japanese steel market and the weakness of the Japanese Yen (JPY) versus the US dollar (USD). The Asian ferrous market is mainly derivative of the Japanese scrap market. Some perspective: In 2023, Japan exported seven million tons of ferrous scrap to Asian destinations while the US exported 4.3 million tons. The stronger the Japanese domestic market is, the less Japanese export scrap goes into other countries in the region.

The Japanese domestic vs export market is significantly contingent on the value of the JPY vs the USD. The weaker the JPY gets v the USD, the more competitive Japanese scrap becomes vs US scrap. For example, in January 2023, the JPY hit a strong Y128 vs USD. But starting in late May, the JPY weakened – hitting 141 and held onto the 140-150 range for the rest of 2023. That continues to today. The weakness in the JPY vs USD led to a huge increase of Japanese scrap imports to Taiwan and Vietnam in 2023 (up 55% and 28% YOY respectively in 2022/2023). Taiwan and Vietnam are the two largest destination nations for US scrap exports from the West Coast to East Asia. As long as the JPY exchange rate remains weak (140-150 JPY/USD range), the US scrap export market to Asia has a cap barring any unforeseen market shocks.

Within the 140 to 150 range, the JPY/USD exchange rate strengthened from 151 on November 10 to 141 on December 31. Thus, from November 1 to December 31, Japanese scrap became more expensive vs US scrap. We saw a corresponding price increase for US scrap exporters. However, this was short lived. As of early January 2024, the JPY rate weakened again and is now at 150. This has made Japanese short sea scrap cheaper than US scrap CFR Taiwan and Vietnam than it was in November and December of 2023. It has also has put renewed downward pressure on US scrap prices to Asia since early January.

As of today, short sea Japanese H1/H2 (HMS 80/20) scrap to Vietnam is $395-400/mt CFR, which pushes US containerized scrap down to $380-385/mt CFR Vietnam. The $10-$15/mt price differential between container vs bulk shipments is because container scrap costs $10-$15/mt more to truck and handle at the discharge ports then do shipments made by bulk

In summary, dealers on the West Coast expect export prices to rise this week as buyers return to the market. But any increase could be short-lived. In addition to the weak JPY, exporters are also facing rising container freight rates due to issues both in the Red Sea and the Panama Canal. Given the weakness in the Japanese Yen and expected freight rate increase, I wouldn’t hold my breath for any significant increase in US ferrous scrap export prices from the US to Asia. And if a bounce does occur, take the order because it may not last long.

January’s headline index was three points lower than the 49.3-point reading during the same month of 2023.

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.

“This now marks the lengthiest period of declining billings since 2010, although it is reassuring that the pace of this decline is less rapid and the broader economy showed improvement in January,” AIA chief economist Kermit Baker said in the latest report.

Despite these conditions, Baker noted that most firms are reporting “growth with inquiries into new projects and value of newly signed design contracts is holding steady, showing potential signs of interest from clients in new projects.”

Newly signed design contracts were at 49.7 in January, just marginally below the 50-point threshold seen the month prior, the report said.

Results were mixed across the country. The Midwest and Southern regions inched up, while the Northeast and Western regions saw a drop, AIA said.

“Business conditions remained weak at firms in all regions of the country except the Midwest, where modest growth was seen in three of the last four months,” the report said.

Initially, the blame for this sudden downturn was directed towards the financial players. However, data published by the Commodity Futures Trading Commission (CFTC) painted a different picture. Contrary to popular belief, financial players have been largely absent from the hot-rolled coil (HRC) steel market in recent times. Total open interest held by money managers as a percentage of the total market open interest has dwindled into the low single digits from over 30% in the fourth quarter of the previous year.

As market participants searched for clues, evidence of weakness in the physical market became more widely observed and the futures market took another sharp leg lower, now testing $800/st. Importantly, spot market indices followed suit, confirming the downtrend initially observed in the futures market.

While $800/st HRC steel seemed farfetched for many a month ago, it’s now looking like a realistic possibility. And for those who think this is the new floor, I’d like to remind readers that the nearby futures curve was trading below $700/st ~5 months ago, just before domestic mills began announcing price hikes.

The sharp drop in the nearby futures curve has shifted the forward curve into contango for the first time since the middle of October, implying a well-supplied physical market.

Fundamentally, several factors have contributed to the recent downtrend and the case for a rebound is looking increasingly difficult in the near term. In recent weeks, domestic production has increased, imports are arriving at an accelerating pace, domestic lead times have collapsed, and macro demand indicators continue to signal a sluggish first quarter. Furthermore, there have been notable declines in input costs and associated products, including iron ore, steel scrap, and European and Chinese HRC.

While the recent downturn can be discouraging to some, it also presents an opportunity for stakeholders to reassess their strategies and adapt to the evolving market dynamics. Navigating these uncertain times requires vigilance, adaptability, and a keen understanding of market trends.

Stay tuned.

The new requirement comes after the government began seeking public comment on the issue in 2022.

At present, importers have the option to begin reporting the data. This is part of the government’s phased-in approach to ensure a smooth transition to mandatory reporting in the fall, it said.

“Canada is implementing a predictable and transparent process for collecting melt-and-pour information, which will bring more reliability and resiliency to the North American steel supply chain,” commented Mary Ng, Canada’s Minister of Export Promotion, International Trade and Economic Development.

The government noted that the US is the only other country at present that collects data on the country-of-melt origin.

Steel industry response

Canada’s steel industry welcomed the announcement.

“As Canada’s steel industry faces significant exposure to global steel excess capacity and unfair trade practices, it is a crucial development that Canada is now requiring this disclosure as a new condition on all steel imports into the country,” the Canadian Steel Producers Association (CSPA) said in a statement.

CSPA said the new requirement will allow for greater transparency and accountability in steel trade, and “support efforts to prioritize the use of cleaner steels throughout North American supply chains.”

Additionally, it will better align Canada’s trade monitoring system with the US’ system, CSPA said.

A spokesperson for Algoma Steel told SMU their views on this matter are in line with CSPA’s. Algoma CEO Michael Garcia sits on the CSPA board executive committee.

Stelco’s CEO Alan Kestenbaum called the new melt-and-pour standard a “major win for the steel industry” in Canada.

“I believe we’re going to have a very significant benefit from this,” Kestenbaum stated on the Canadian steelmaker’s quarterly earnings call on Thursday.

He said the requirement will likely reduce customers’ appetite for imports as the inconvenient, added step and the risks associated with importing, such as long lead times, will outweigh the “relatively small financial benefit” that imports provide.

In dollar-per-ton terms, US HRC is now on average just $77 per short ton (st) more expensive than offshore product, down $54 w/w on average and off more than $200/st from an average premium of $281/st a month ago.

This week, domestic HRC tags were $875/st on average based on SMU’s latest check of the market on Tuesday, Feb. 20. US prices are now at their lowest level since early November.

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, Feb. 22, the CRU Asian HRC price was $535/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 $759/st. The latest SMU hot rolled average for domestic material is $875/st.

The result: US-produced HRC is theoretically $116/st more expensive than steel imported from Asia. The spread is down $54/st vs. last week, and down $165/st from a seven-month high of $281/st in late December.

Italian HRC

Italian HRC prices were down $9/st to roughly $720/st this week. Despite that decline, Italian prices are still up $141/st from a recent bottom of $577/st last October. After adding import costs, the delivered price of Italian HRC is in theory $810/st.

That means domestic HRC is theoretically just $65/st more expensive than HRC imported from Italy. The spread is down from $121/st last week. The domestic hot band price premium over offshore product from Italy is down $232/st from a recent high of $297/st in mid-December.

German HRC

CRU’s German HRC price ticked down $13/st vs. the week prior to $735/st. After adding import costs, the delivered price of German HRC is in theory $825/st.

The result: Domestic HRC is theoretically a mere $50/st more expensive than HRC imported from Germany. The spread is now $215/st below 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.

North American vehicle production, including personal and commercial vehicles, totaled 1.3 million units in January, a 24.2% gain from 1.05 million units in December. That’s also nearly 11% ahead of the 1.18 million produced one year ago.

Below in Figure 1 is North American light-vehicle production since 2014 on a rolling 12-month basis with a y/y growth rate. Also included is the average monthly production, which includes seasonality since 2014.

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 January, the growth rate for total personal and commercial vehicle assemblies in the USMCA region is up by double-digits. The momentum change, however, remains slightly 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 25% month-on-month (m/m) boost in January, after declining by 22% the month prior. The result was also a 14% gain vs. the period one year ago.

The US saw the largest increase in units produced while Mexico’s percentage gain led the way in January vs. December. The US was up 104,784 units (+18.8%), followed by Mexico, up 71,646 units (+49.2%), while Canada produced 22,461 more units (+26.6%) m/m.

Production share across the region was largely unchanged. The US saw personal vehicle production share of the North American market edge up marginally to 67.1%. Both Mexico and Canada saw its share slip to 21.4% and 11.5%, 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 21% in January with a total of 319,495 units produced during the month, an increase of 55,564 units m/m. The gain was driven by the US, which saw a 23.9% boost in commercial vehicle assemblies in January, producing 43,737 more vehicles m/m.

Canada produced 11,486 light commercial vehicles last month, a 5.2% increase from December’s 10,921 total units. January marked Canada’s 27th 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 January vs. December, up 16.1% and producing 11,262 more vehicles over the same period.

The overall increase put the commercial production growth rate just 1.8% for the region last month, a strong reversal from a -8.9% rate in December.

The market share across the region was largely unchanged. The US was up 3.1 percentage points, with a total share of 69%, followed by Mexico with a 26.8% share, and Canada with at 4.2% share in May.

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).

Canadian steelmaker Stelco swung to a loss in the fourth quarter as revenue declined due to decreased shipping volume and average selling prices.

The Hamilton, Ontario-based company reported a net loss of Canadian $25 million (-US$18.5 million) in Q4’23 vs. net income of C$23 million a year earlier on revenue that fell 9% to C$613 million (US$454.1 million).

“Our fourth-quarter results were down over the previous quarter, but we do expect improved margins in Q1 and into Q2’24, as we begin to realize the higher market pricing that we saw in the latter part of 2023,” Alan Kestenbaum, executive chairman and CEO, said.

He made the comments in a statement released after market close on Wednesday, adding that the company remains “optimistic that market demand will stay strong.”

Stelco reported a 9% year-over-year drop in shipping volume in Q4’23 to 609,000 short tons (st). Meanwhile, the company logged a 2% decrease in average selling price per short ton for steel products to $941 in the same comparison.

Comparing it to Q3’23, CFO Paul Scherzer said, “Our average selling price declined 13% quarter over quarter which, combined with a scheduled maintenance outage that had an impact on our shipments for the fourth quarter, led to a decline in adjusted Ebitda to C$51 million and adjusted net income of C$9 million.”

He continued: “Entering Q1’24, we anticipate a return to shipping volume of approximately 625,000 to 675,000 st and an improvement in adjusted Ebitda due to the realization of more favorable pricing witnessed through much of the fourth quarter.”

A breakdown of Stelco’s shipments is below.

Auto sales were likely impacted by a holiday splurge hangover and several winter storms across the Midwest and Northeast. High-priced inventory and higher financing rates continued to weigh on sales, though a recovery in incentive spending helped to support sales. And while production levels are roughly back at pre-pandemic levels, the average transaction price only fell by 2.4% in 2023.

The average daily selling rate (DSR) was 43,042 – calculated over 25 days – down from January 2023’s 43,622 daily rate. Passenger vehicle sales increased 1.4% y/y while sales of light trucks moved higher by 3.1% over the same period. Light trucks accounted for 80% of last month’s sales, roughly the same as its share of sales in January 2023.

Below in Figure 1 is the long-term picture of sales of autos and lightweight trucks in the US from 2019 through January 2024. 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 $47,401 in January, down 2.8% from December. Last month’s ATP was also 4.2% (-$2,067) below the year-ago period, according to Cox Automotive data.

Incentives decreased for the first time in four months. Last month’s incentives were $2,346, down 10.9% from December’s 31-month high of $2,633. With the m/m decrease, incentives are nearly 5% of the average transaction price. Incentives are up 86%, or $1,086, y/y.

In January, the annualized selling rate of light trucks was 11.991 million units, down 7.2% vs. the prior month and down 0.5% y/y. Annualized auto selling rates saw similar dynamics, down 5.8% and 1.5% 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.

Lead times have edged down to roughly 5 weeks, while hot-rolled coil is now on average below the $900-per-short-ton (st) mark.

SMU’s Steel Demand Index now stands at 47, down 2.5 points from a reading of 49.5 at the beginning of February. The measure is the lowest it’s been since late December, still in contracting territory, a level it’s been in for the better part of the past ten months.

The measure had improved by more than 13 points back on Nov. 9, staying in expansion territory until late December. Of note, the only time the index has moved into growth territory since late-April 2023 has been for short-lived bumps when the market responded to mill price hikes in mid-June, late September, and November.

SMU’s Steel Demand Index has been largely trending downwards and in contraction territory since early April.

Methodology

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.

Current state of play

While overall market sentiment is steady – hovering around an average reading of 65 for the better part of a couple of months – buyer resistance, tighter lead times, lower scrap prices, and improved reading in mills’ willingness to negotiate lower prices point to tags trending down further.

SMU’s latest check of the market on Feb. 20 placed HRC at an average of $$875/st FOB mill, east of the Rockies, down $65/st vs. the prior week. Hot band is now down $170/st since recently peaking at $1,045/st in early January.

And lead times have still been pointing down as well for much of the past two months. Lead times edged down a bit to 5.13 weeks vs. 5.16 weeks in early February.

As we move into the second half of Q1’24, buying has not been as strong as many anticipated and buyers seem unwilling to build inventory. The result: it’s no surprise that our demand index has declined as we approach March.

It’s important to note that SMU’s demand diffusion index has, for nearly a decade, preceded moves in steel mill lead times (Figure 2), and SMU’s lead times have also been a leading indicator for flat-rolled steel prices, particularly HRC (Figure 3).

What to watch for

I’m afraid to say it, but it’s still lead times. After they pushed out a bit in late December, SMU’s survey results have since shown lead times to be on a steady decline. Our hot-rolled lead times are presently averaging right around five weeks, with several inputs between three and four weeks. They are nearly two weeks below 2023’s high of 6.96 weeks and pointing lower.

With prices still declining, will lead times continue to wane, and what does that mean for overall underlying demand as we move closer to Q2?

Note: Demand, lead times, and prices are based on the average data from manufacturers and steel service centers that 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.

“The good news is that demand is still there,” he added.

He told analysts that he doesn’t see prices going down much further in the near future because of this, noting that he sees a new, higher floor for HRC prices in North America.

He said that imports should begin to ease starting in May.

On the last couple of conference calls, “we were always talking about when the recession is coming,” Vedoya said. “And to be honest, today, we don’t see that in the demand. We see healthy demand in both countries, in the US and in Mexico,” he said.

Vedoya said on the call that “we expect shipments in Mexico to maintain the strong level reported in the fourth quarter of 2023.” The company reported shipping 2.12 million metric tons of steel in Mexico in Q4’23.

“Growth in Mexico’s steel market has been strong,” he stated on the call, noting that steel consumption in the country grew by double digits from 2022 to an all-time high of more than 18 million tons in 2023. And while he doesn’t see consumption growing by as much this year, he noted that the World Steel Association forecasts 2% growth in Mexico.

“The market environment in Mexico continues to be healthy,” he said, citing strong industrial activity, automotive production, non-residential construction activity, and reshoring of manufacturing. Residential construction was the only segment in which he noted weakness due to it being negatively affected by rising construction costs.

“The tentative deal addresses these and other core issues of concern to KTP autoworkers,” UAW added.

Still, there are “dozens of remaining open local agreements across the Big Three automakers, while the national contracts were ratified this fall after the union’s Stand Up Strike,” according to the union.

“We are pleased to have reached a tentative agreement on a new labor contract with UAW Local 862 covering Kentucky Truck Plant and 8,700 valued UAW-Ford employees,” a spokesperson for Ford said in a statement sent to SMU. “Ford is the No. 1 employer of UAW-represented autoworkers and 2024 is one of our biggest-ever new product launch years in the US.”