ArcelorMittal swung to a loss in the fourth quarter largely because of costs associated with a deadly coal mining disaster last year in Kazakhstan.

The Luxembourg-based steelmaker sold its Kazakhstan operations in December and no longer owns and operates coal mines as a result of the move, according to comments released along with earnings data on Thursday.

All told, ArcelorMittal recorded a loss of nearly $3 billion in the fourth quarter of 2023 compared to a profit of $261 million in Q4’22.

The loss stemmed not only from Kazakhstan but also from Acciaierie d’Italia (ADI), previously known as Ilva. The Italian government has considered taking a controlling stake in the massive but financially struggling mill, according to media reports.

The company noted that those big losses were one-offs. “Looking ahead, there are early signs of a more constructive industry backdrop,” ArcelorMittal CEO Aditya Mittal said in a statement.

North American results and operations update

ArcelorMittal’s North American operations were a comparative bright spot.

But earnings before interest, taxes, depreciation, and amortization (Ebitda) fell quarter over quarter because of lower steel selling prices that were only partly offset by higher shipments, the company said.

It was a roughly similar story at AM/NS Calvert, ArcelorMittal’s 50-50 joint venture sheet mill in Alabama with Japan’s Nippon Steel:

A quarter-over-quarter Ebitda decline at Calvert resulted from higher maintenance costs and a weaker sales mix. The company said the weaker mix stemmed from fewer shipments to the high-margin automotive market.

On the operations side, ArcelorMittal said it remained on track to start up a new EAF at Calvert – one with annual capacity of 1.65 million short tons (1.5 million metric tons) – in the second half of 2024. And it continues to hold the option to add a second EAF that would sport similar capacity.

Recall that AM/NS Calvert does not currently melt steel but instead relies on slabs brought in from other ArcelorMittal mills or from competitors.

The company said it had also drafted plans to double hot-briquetted iron (HBI) capacity at its plant near Corpus Christi, Texas. Those plans also envision adding carbon capture and sequestration (CCS) capability to the plant.

CCS typically involves capturing carbon emissions and then pumping them deep underground. ArcelorMittal hopes such technology would allow it to produce HBI with an “ultra-low” carbon footprint.

The expansion and upgrades slated for the Texas HBI plant come after ArcelorMittal in 2022 acquired an 80% stake in the facility from Austrian steelmaker Voestalpine for $1 billion.

The big picture

“The company remains positive on the medium/long-term steel demand outlook,” ArcelorMittal said in commentary released with earnings data.

Why? Apparent demand was “showing signs of improvement” across the world as a “destocking phase reaches maturity,” ArcelorMittal said. The company predicted that apparent steel consumption would as a result grow by 3-4% in 2024 compared to 2023.

Turning to the US, ArcelorMittal predicted that demand growth in the US would “remain lackluster” because of the lagging effect of higher interest rates. But a de-stocking cycle in the States, just as in the rest of the world, should end in 2024. That should lead apparent consumption of flat-rolled steel to increase 1.5-3.5% this year compared to last, the company said.

ArcelorMittal expects a “marginal decline” in steel demand in Europe in 2024. Brazil, in contrast, should see a “gradual resumption” in steel consumption. And India should expect “another strong year.”

In China, in contrast, “economic growth is expected to weaken.” But government stimulus and infrastructure spending should help to offset that, the company said.

The new annual health-based national ambient air quality standard for fine particulate matter (PM2.5) announced on Wednesday will now be 9 micrograms per cubic meter, down from 12 micrograms per cubic meter previously.

The EPA said this action will aid the US economy “by deploying billions of dollars and creating good-paying jobs across the transition to cleaner technologies.”

The agency pointed out that since 2000, PM2.5 concentrations in the outdoor air have fallen by 42% while US GDP jumped by 52% during that time.

Also, EPA claimed the updated standard “will save lives — preventing up to 4,500 premature deaths and 290,000 lost workdays, yielding up to $46 billion in net health benefits in 2032.”

“This final air quality standard will save lives and make all people healthier, especially within America’s most vulnerable and overburdened communities,” EPA administrator Michael Regan said.

Steel groups respond

Trade groups for the steel industry think the new standard could harm American manufacturing and steel in particular.

“This regulatory action threatens successful implementation of the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and the important clean energy provisions of the Inflation Reduction Act,” said Philip Bell, president of the Steel Manufacturers Association (SMA), in a statement sent to SMU on Wednesday.

Bell said it “will stifle the capital investment that creates jobs, reduces carbon emissions and modernizes manufacturing.”

He added: “It could put as much as 40% of the US population in non-attainment areas, causing manufacturers to abruptly change or curtail operations and cancel new projects. It will make it even more difficult to obtain permits for new factories, facilities, and infrastructure to power economic growth.” 

Kevin Dempsey, president and CEO of the American Iron and Steel Institute (AISI), echoed these concerns in a statement sent to SMU on Wednesday.

“The standard released today will place most of the United States in non-attainment for PM 2.5, regardless of the fact that the majority of PM 2.5 emissions come from natural causes and non-industrial sources,” he pointed out.

SMA agreed, saying that ~84% of PM2.5 emissions in the US come from “fires, road dust, agriculture and other nonpoint sources. Yet the burden of compliance will fall heavily on domestic industry, resulting in unintended consequences.”  

Dempsey noted that the US steel industry is the cleanest in the world, already operating under “some of the most stringent air standards.” Additionally, “all clean energy technologies use steel,” he said.

Commenting on US manufacturing, SMA said the new standard comes despite the fact “that American manufacturers have made historic reductions in emissions and invested millions of dollars in state-of-the-art processes and equipment to continue that trend.”

“We urge the EPA to reconsider this rule before it undoes so much of the progress Americans have made toward economic prosperity and a cleaner environment,” SMA’s Bell said.

In dollars-per-ton terms, US HRC is now on average $171 per short ton (st) more expensive than offshore product, down just $19 on average week on week (w/w) but down nearly $110/st from an average premium of $281/st a month ago, and a four-month low.

This week, domestic HRC tags were $980/st on average based on SMU’s latest check of the market on Tuesday, Jan. 30. Prices slipped below the $1,000/st mark for the first time since 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 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-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, please get in touch with the author at david@steelmarketupdate.com.

Asian HRC (East and Southeast Asian ports)

As of Thursday, Feb. 1, the CRU Asian HRC price was $544/st, down $5/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 $770/st. The latest SMU hot rolled average for domestic material is $980/st.

The result: US-produced HRC is theoretically $210/st more expensive than steel imported from Asia. The spread is down $14/st vs. last week, and down $71/st from a seven-month high of $281/st in late December.

Italian HRC

Italian HRC prices were up $3/st to roughly $727/st this week. With that gain, Italian prices are up $150/st from a recent bottom of $577/st last October. After adding import costs, the delivered price of Italian HRC is in theory $817/st.

That means domestic HRC is theoretically $163/st more expensive than HRC imported from Italy. The spread is down from $186/st w/w. Domestic hot band price premium over offshore product from Italy is down $134/st from a recent high of $297/st in mid-December.

German HRC

CRU’s German HRC price unchanged vs. the week prior, holding at $750/st. After adding import costs, the delivered price of German HRC is in theory $840/st.

The result: Domestic HRC is theoretically $140/st more expensive than HRC imported from Germany. The spread is now $125/st below 2023’s widest spread of $265/st, which was recorded just about a month ago.

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 2023 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, Section 232 tariffs no longer applied 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.

Rather than summarizing the comments we received, we are sharing some of them in each buyer’s own words.

Steel prices are inflecting down. Do you agree? How do you expect prices to trend over the next three months, and why?

“Prices will move down over the next several months. Demand seems steady, inventories are unclear.”

“Yes. Down 10% is expectation from all mills that we do business with.”

“Yes. Should be heading lower at least for the next two months. A lot can happen before that third month.”

“Yes. $900 HRC sounds reasonable for April.”

“I agree. Decline will continue for three more months, then a slight uptick at the end of Q2.”

“Yes, I agree. Expect prices to drift lower through at least March. If they drop slow and steady, that could extend into April.”

“Yes, and they will continue to inflect down since there is nothing happening in the market to change that.”

“I agree, and feel we will see prices continue to move lower into the second quarter. Barring anything unforeseen from happening, I feel a steady move to the low $800s for HRC.”

“Absolutely. We are anticipating a down market for the foreseeable future. If recent history is any indication, we’ll see an overcorrection over the next few quarters, to the downside.”

“Yes, I expect pricing to stabilize because every indication shows a slowing market.”

“Remain steady on plate.”

Is demand improving, declining or stable, and why?

“Demand is stable, contract buying better year over year, led by automotive. But spot buying is minimal as prices fall.”

“Declining in many market segments.”

“Improving – people are looking for deals.”

“Declining due to high interest rates hurting projects.”

“Stable for the season.”

“Demand never really changed much.”

“Declining in construction due to weather, otherwise stable.”

“Demand is not improving but stable”

“Demand for discrete plate is stable to slow due to seasonality.”

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

“Imports are priced OK. Lead time is risk as usual. Logistics/freight are some issues of concern.”

“Less attractive. Same prices as futures and not much lower than some domestic offerings with much longer lead times.”

“Imports are always less expensive.”

“We only deal with domestic due to customer requirements.”

“Yes on cost, but no on lead time as our markets soften.”

“No, takes too long to receive in a down market – too much of a crapshoot.”

“Yes, still large gap between domestic and offshore over next couple of months but will narrow by April.”

“Imports are definitely attractive price-wise; it is all just a matter of lead times.”

“Yes, seeing very cheap imports to Port of Houston.”

“Imports are attractive on a price front, but extended lead times and comparing to the futures market makes them unappealing.”

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

“China stock market is softening and hard to know the strength of their economy.”

“Long-term effect if interest rates do not drop for residential.”

“Lower input prices.”

“The number of production issues at so many mills is quite surprising.”

“Potential impact of delayed or cancelled large steel intensive projects: wind, chip, etc.”

“Trump election in US with 10% tariffs a possibility on all goods imported into US. What would be the total impact on the steel industry?”

“I am very confused on AHMSA – just last week I heard one Mexican mill rep tell us they were officially closed moving forward, and then another US rep commented that AHMSA should be going to market very aggressively in H1. No clue what is the truth.”

“Raw material prices being higher than previous years as we see prices falling.”

Care to share your thoughts as well? Contact david@steelmarketupdate.com to be included in our questionnaires.

Over the past 10 years, only 2020 and 2019 saw fewer imports, with 22,081,660 st and 27,868,850 st, respectively.

2023’s imports were 14% below the last decade’s annual average of 32,831,536 st.

Figure 1 below shows import levels were lower in the latter half of the decade.

When looking at flat-rolled steel imports, 2023 was not a special year. Of the six major flat-rolled steel categories, all were lower year over year (y/y), except for cut-to-length (CTL) plate.

While the other categories saw double-digit y/y declines, cut plate imports rose 21% to a five-year high of almost 650,600 st. Canada and South Korea were the top suppliers, supplying 37% and 34%, respectively, of total CTL plate imports in 2023. Malaysia was the next at 5%, followed by Sweden and Australia, both at 4%.

Compared to their 10-year averages, imports of all the major flat rolled categories were lower (Table 1).

Full-year 2023 shipments were 89,338,472 st, edging down 0.1% from 2022 shipments of 89,469,132 st. 

Comparing full-year 2023 shipments to 2022, AISI said hot-rolled sheet shipments increased by 14%, cold-rolled sheet by +4%, and corrosion-resistant sheet by +1%.  

Algoma Steel reported a wider loss in its fiscal third quarter amid lingering impacts from the United Auto Workers (UAW) strike and “heavy seasonal maintenance.” Additionally, the Canadian steelmaker said it has completed repairs at it blast furnace and “restored partial coke-making capabilities” after a previously reported incident on Jan. 20.

Fiscal Q3’24 earnings

Sault Ste. Marie-based Algoma posted a net loss of 84.8 million Canadian dollars (USD$63 million) in its fiscal Q3’24 ended Dec. 31 vs. a loss of CA$69.8 million a year earlier on revenue that increased 8% to CA$615.4 million ($456.8 million).  

For the increased revenue, the company cited “increased steel shipment volumes as a result of improved market conditions.”

Steel shipments for quarter totaled 516,068 short tons (st), up 12.6% from 458,341 st a year earlier.

“We delivered results in the fiscal third quarter that were consistent with our previously disclosed outlook, accomplished against a challenging backdrop that included the remaining impact of the UAW strike and a heavy seasonal maintenance quarter,” Algoma CEO Michael Garcia said in a statement on Tuesday.

Resuming operations after earlier incident

Garcia gave an update on the incident at Algoma’s coke batteries and BF. As previously reported, a structure supporting utilities piping at its coke-making plant collapsed on Jan. 20.

“Limited coke-making operations continue,” he said. “As we develop our revised production plan, we will continue to evaluate our requirement for purchased coke to supplement our current inventories.”

For safety reasons, BF operations were stopped when the incident occurred. There were some problems associated with the resart. Garcia noted that Algoma has finished all necessary repairs and has begun gradually restarting the BF, “increasing energy input as conditions permit.”

“Based on our current assessment, we anticipate producing usable hot metal within the next seven days,” he said. A return to full production is expected within the next two weeks.

“The outage at the blast furnace and limited coke production are collectively expected to negatively impact shipments, costs, and profitability in the fourth fiscal quarter,” he added.

Algoma said it has “standard insurance coverage” intended to cover these types of circumstances, including business interruption insurance. “The company is in the process of submitting claims under its insurance policies for covered losses,” it said.

In an earnings conference call on Wednesday, CFO Rajat Marwah said insurance advisers and adjusters were on site to assess the damage, and more updates would be provided in the next few months as they come in.

“All told, we expect the incident to impact production and shipments for more than three weeks, totaling roughly 120,000 tons to 150,000 tons,” Marwah said.

Garcia said on the call that Algoma anticipated repair costs in the CA$20-30-million range to be completed around April. A complete recovery of the coke batteries is expected.

Regarding long-term costs, Marwah said, “It’s too early to say.” He commented that after an initial survey of the coke batteries’ walls, “we don’t expect much degradation there, which is the key from long-term cost perspective.”

“We’ll probably be running at 30% to 40% of our production and using external coke during this quarter,” Marwah said. “And come next quarter we should get down to our full production levels.”

EAF update

Algoma said it has made substantial progress on the construction of two new EAFs to replace its existing BF and basic oxygen steelmaking operations. Garcia said the project remains “on time and on budget,” with commissioning expected late in calendar 2024.

The cumulative investment as of Dec. 31, was CA$509.9 million of the total projected cost of CA$825-875 million.

“Project commitments to date total approximately (CA)$750 million, with ~7% tied to time and material contracts, while the balance is fixed price in nature,” Algoma said.

After the switch to EAF steelmaking, Algoma’s facility is expected to reach an annual raw steel production capacity of ~3.7 million tons, matching its downstream finishing capacity, and to generate a ~70% reduction in annual carbon emissions.

In 2025, the company plans to operate in a “hybrid mode,” using both the BF and EAFs, before eventually phasing out the BF.

“That’s been the plan for some time as well as we think it makes the right financial sense,” Garcia said. “Obviously, financially we’ll continue to keep a very close eye on that,” he added, noting that would include evaluating the state of the assets after the current incident.

Marwah said the costs in hybrid mode running both the BF and EAFs will be higher initially, “as we are transitioning.” However, he noted when Algoma “starts shutting down the facilities and reducing the fixed costs, the costs will start coming down.”

Outlook

Talking about steel pricing in 2024 so far, Garcia said, although “off from year-end highs, these prices still represent a meaningful improvement from levels seen during much of 2023.”

Marwah said Algoma expects higher EBITDA in the current quarter due to aniticipated higher steel prices and increased volumes.

Garcia concluded by saying the company’s short-term strategic path is clear.

“We believe that EAF brings a tremendous strategic value to Algoma. We’re laser focused on executing that we’re on-time, on-budget. And we very much look forward to beginning commissioning at the end of this year,” he said.

Both the Present Situation and the Expectations indices also improved from December. Despite the uptick in confidence, consumers’ intent to purchase homes, autos, and big-ticket items declined modestly, the report noted.

“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, The Conference Board’s chief economist. “The gain was seen across all age groups, but largest for consumers 55 and over.”

Responses from consumers showed they remain concerned with “rising prices although inflation expectations fell to a three-year low,” Peterson added.

Buying plans dipped last month, though consumers’ perception of a US recession over the next 12 months declined again, consistent with a rising Expectations Index, the report said.

The Present Situation Index, which measures consumer sentiment toward current business and labor market conditions, surged in January, rising 14.1 points to 161.3. The Expectations Index, which assesses the short-term outlook for income, business, and labor market conditions, moved higher to 83.8, up 1.9 points from the prior month’s reading.

Calculated as a three-month moving average (3MMA) to smooth out volatility, The Conference Board’s Composite Index was 107.9, a 5.2-point increase vs. December, marking January as the third straight month to see an increase.

The Composite Index is made up of two sub-indexes: Consumers’ view of the present situation and their expectations for the future. Figure 1 below notes the 3MMA linear trend lines from January 2014 through January 2024 vs. the trend lines of all three subcomponents of the index: Present Situation, Composite, and Future Expectations. All three were above the average composite line of 94.5 before the pandemic, then fell consecutively through February 2021. A surge from March through June of 2021 pulled all three indexes above the composite line once again. However, economic uncertainty continues to weigh on expectations, keeping them below the average.

The table below compares January 2024 with January 2023 on a 3MMA basis. The headline index and both of its two sub-indexes have been on the rise on a year-over-year (y/y) basis. All three indexes have seen tempered gains, with the Present Situation leading the way by a small margin.

When compared to the same 2019 pre-pandemic period, the Composite Index is still behind by more than 20 points on a 3MMA basis. The Present Situation is down nearly 23 points, while the Expectations reading is down roughly 19 points this month when compared to the same period in 2019. The Consumer Confidence report includes employment data and purchase plans. These are summarized in the table below.

The present situation jumped in January “buoyed by more positive views of business conditions and the employment situation,” according to the report, as family financial conditions were reportedly improved, suggesting “consumers are starting off the year in good spirits about their current finances.”

The differential between those finding jobs and those having difficulty was 35.7 in January, up from 27.5 in December. The measure is at its highest level since April 2023 but still a ways away from the most recent high of 47.1 set in March 2022. The difference between those expecting wages to rise vs. those expecting wages to decine moved up to 4.9 in January from 4.7 the month prior and was well removed from the recent high of 11.6 in June 2021.

Buying intentions for big-ticket items — cars, homes, and major appliances — were all down slightly in January, and have been mostly trending lower over the past few months.

The share of consumers planning to buy motor vehicles, homes and appliances such as refrigerators and washing machines all declined m/m.

These recent dynamics and historical movements are illustrated below in Figure 2.

Note: The Conference Board is a global, independent business membership and research association working in the public interest. The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen. The index is based on 1985 = 100. The composite value of consumer confidence combines the view of the present situation and of expectations for the next six months.

To be clear, there are still plenty of people paying more than $1,000/st for spot tons, and our range reflects that. But we’re also hearing from some of you who have bought in the mid/upper $900s per ton. And we’re not talking thousands of tons (a barge load, for example). We’re talking a few hundred tons (a few rail cars, for example).

We’ve heard some chatter of prices in the $800s per ton. We haven’t been able to substantiate those, not on the domestic side anyway. But we are hearing import numbers in that range. Let’s say ~$800/st for April/May delivery to the Gulf Coast. Add freight upriver into the Midwest, and I can see where some of the chatter about HR in the $800s might be coming from.

It might make sense for buyers in coastal areas – Long Beach, Houston, the Philly area – to buy material at those prices. But I don’t know that I see many inland buyers loading up, especially if HR prices continue to drift lower.

Dimming the lights, or lights out?

With HR prices slipping below $1,000/st, some of you have told me that you think a blast furnace might be idled to “protect” HR at a grand. My kneejerk reaction is that’s a bit of wishcasting. But stranger things have happened. And I wouldn’t be surprised if talk of EAFs dialing back capacity is true.

The bigger EAF steelmakers have a lot of downstream operations to feed know – whether that’s metal roofing, utility poles, garage doors, or tubular products. In the past, they might have cranked up sheet production so that increased volume could help offset price decline. I don’t know that such logic still applies.

Let’s pick some round numbers. Say HR goes from $1,050/st to $650/st (I’m not saying it will, just giving an example) as domestic mills increase volumes. Not only are HR prices now lower, you might also have consumers of your downstream products asking for significant discounts to match the declines they’ve seen in HR price.

So let’s say EAF producers are like a dimmer and integrated producers are an on/off light switch. I can see the logic of EAFs dimming the lights now. But I have a hard time seeing – assuming mills are still very profitable at current levels – an integrated producer shutting off the lights.

Soft or hard landing on world HR prices

As you can in the chart below, US HR prices have since the pandemic sort of bounced on top HR prices abroad like a ball:

We typically dive briefly below world prices as we did in August 2020, late November 2022, and late September 2023. Then we shoot higher again. If post-pandemic norms hold, we’re in the returning-to-earth phase of the cycle.

We talk a lot about whether the Fed will pilot a soft landing or a hard landing when it comes to raising interest rates to lower inflation – all without causing a recession. It’s a good analogy.

I don’t know whether US HR prices will see a soft landing or a bumpy one as they approach world prices. But it’s probably safe to say this: It’s a good buying opportunity once US prices land near world prices – because domestic prices rarely stay on the ground for long.

Wildcard watch: the UAW and non-union automakers

The SMU team asked speakers at the Tampa Steel Conference last week what wildcards they were keeping their eyes out for.

Here is one that didn’t come up then but that I’d keep an eye on: the United Auto Workers (UAW) union. New contracts were negotiated with the “Detroit Three” automakers last fall. And the union has since made good on its promise to organize non-union automakers based on the historic gains it achieved with Ford, General Motors, and Stellantis.

The UAW is working to organize workers at Mercedes in Vance, Ala.; Hyundai in Montgomery, Ala.; and Volkswagen in Chattanooga, Tenn. And the union said on Tuesday that “a clear majority” of the 4,000 workers at VW’s assembly plant in Chattanooga wanted to form a union there.

I’m not going to handicap the odds of them forming a union, let alone of a strike. But it’s fair to say that labor activism isn’t going away anytime soon. (Another example in case you’re not convinced: the International Association of Machinists and Aerospace Workers seeks a 40% pay raise from Boeing.)

SMU Community Chat

Around 600 people have registered for the Community Chat with Wolfe Research Managing Director Timna Tanners.

Tanners is an astute student of the steel industry and doesn’t pull her punches. So don’t miss out! Be sure to register here and tune in on Wednesday at 11 am ET.

It was a similar story for tandem products. CR and galvanized base prices were both at $1,250/st on average – down $25/st and $20/st, respectively, compared to last week. Our Galvalume base price stands at $1,275 per ton on average, down $35/st from a week ago.

Plate prices also slid following Nucor’s price decrease announcement. SMU’s plate price is now at $1,360/st on average, down $15/st vs. last week.

Some sources said that sheet price declines could accelerate in the weeks ahead on low-priced offers for foreign steel, with buyers sit on the sidelines until prices bottom, and should mills struggle to fill March books as a result.

Others said that mill would manage the declines, with some EAF producers already said to be quietly dialing back production. They also warned that consumers tend to exit and re-enter the market at the same time – something that could lead prices to pop when buyers need to restock again.

Our price momentum indicators for all products in the meantime continue to point lower not only on the dip in prices but also on shorter lead times and on buyer feedback that more mills are willing to negotiate lower spot prices.

Hot-rolled coil

The SMU price range is $920–1,040/st, with an average of $980/st FOB mill, east of the Rockies. The bottom end of our range and the top end of our range were down $20/st vs. one week ago. Thus, our overall average, was $20/st lower w/w. Our price momentum indicator for HRC remains lower, meaning SMU expects prices will move lower over the next 30 days.

Hot rolled lead times: 3–8 weeks

Cold-rolled coil

The SMU price range is $1,200–1,300/st, with an average of $1,250/st FOB mill, east of the Rockies. The lower end of our range was $40/st lower vs. the prior week, while the top end of our range was down $10/st. Our overall average is down $25/st from last week. Our price momentum indicator for CRC remains lower, meaning SMU expects prices will move lower over the next 30 days.

Cold rolled lead times: 6–9 weeks

Galvanized coil

The SMU price range is $1,200–1,300/st, with an average of $1,250/st FOB mill, east of the Rockies. The lower end of our range was down $40/st vs. the prior week, while the top end of our range was unchanged w/w. Our overall average is $20/st lower than the week prior. Our price momentum indicator for galvanized remains lower, meaning SMU expects prices will move lower over the next 30 days.

Galvanized .060” G90 benchmark: SMU price range is $1,297–1,397/st with an average of $1,347/st FOB mill, east of the Rockies.

Galvanized lead times: 5–10 weeks

Galvalume coil

The SMU price range is $1,250–1,300/st, with an average of $1,275/st FOB mill, east of the Rockies. The lower end of our range was $10/st lower w/w, while the top end of our range was down $60/st from the prior week. Our overall average was down $35/st when compared to the previous week. Our price momentum indicator for Galvalume remains lower, meaning SMU expects prices will move lower over the next 30 days.

Galvalume .0142” AZ50, grade 80 benchmark: SMU price range is $1,544–1,594/st with an average of $1,569/st FOB mill, east of the Rockies.

Galvalume lead times: 7–8 weeks

Plate

The SMU price range is $1,320–1,400/st, with an average of $1,360/st FOB mill. The lower end of our range was unchanged vs. the week prior, while the top end of our range was down $30/st w/w. Our overall average is down $15/st vs. one week ago. Our price momentum indicator for plate remains lower, meaning SMU expects prices will move lower over the next 30 days.

Plate lead times: 4-7 weeks

SMU note: Above is a graphic showing our hot rolled, cold rolled, galvanized, Galvalume, and plate price history. This data is also 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.

What we’ll talk about

Galv galore! Scrap Squeeze! Sheet Storm!

Clever catchphrases aside, we’ll talk about increased capacity not only of hot-rolled (HR) coil but also of coated products. How will that tonnage fit into the market: Will it displace imports, collide with older capacity, or ramp up into a domestic market that needs more steel?

We’ll talk about raw materials, too. The sheet market risks being oversupplied as new capacity ramps up. But could the scrap market risk becoming undersupplied as new electric-arc furnace (EAF) mills try to draw on a raw material that was once abundant but won’t be in the future?

Finally, we’ll talk news. It’s an election year. Steel will be a part of the conversation again. Former President Donald Trump said he would, if elected, block Nippon Steel’s $14.1-billion acquisition of U.S. Steel. What does that mean when valuing shares of U.S. Steel in particular and steel assets more broadly speaking?

We’ll take your questions, too. So think of some good ones and throw them in the Q&A!

Editor’s note: Check out SMU’s Community Chat page if you’d like to see recordings of past webinars, including our last one with CRU principal analyst and iron ore expert Erik Hedborg.

“The US manufacturing sector continued to contract, though at a marginal rate compared to December. Demand moderately improved, output remained stable and inputs are accommodative,” Timothy R. Fiore, ISM chair, said in a statement.

Supplier deliveries are up 2.1 percentage points from 47% in December, and the inventories index moved up by 2.3 percentage points.

Overall demand moderated, with new orders expanding at a “respectable rate,” while the new export orders index contracted, according to the report.

“Demand remains soft but shows signs of improvement, and production execution is stable compared to December, as panelists’ companies continue to manage outputs, material inputs, and labor costs,” Fiore added.

Two of the six biggest manufacturing industries registered growth in January, a welcome sight after none recorded growth the month prior.

In total, four manufacturing industries reported growth in January – apparel, leather and allied products, textile mills, transportation equipment, and chemical products – while the remaining 13 industries reported contraction in January, ISM said.

Construction

“For the most part, things have been good for the last 12 months,” Simonson said, according to Census Bureau data tracked by Arlington, Va.-based AGC.

Looking to 2024, he said, “Some sectors will be ‘torrid,’ or at least doing very well. Others will be cooling off, tepid at best, or maybe even chillier than that.”

Based on a survey AGC conducts every November, Simonson said contractors are optimistic for several categories, with water and sewer projects high on the list. Behind that, but still in positive territories, were transportation, bridge and highway construction, federal projects, health care and hospitals, and manufacturing, among others. Warehouse construction and multi-family residential were viewed as weakly positive categories.

Lodging was slightly negative, while retail and private office construction were more sharply negative.

Describing himself as a “chronic optimist,” Simonson sees the economic recovery continuing this year. He pointed out that he successfully predicted there would be no recession last year, while many economists were forecasting the opposite. However, “the risk of recession remains for this year,” he noted.

Downside possibilities he warned of included another pandemic and a “full breakdown in government activity.”

However, he said, “The outlook for demand for construction will remain positive.”

He expects interest rates will however close to 7% for at least a few months, which has implications for construction, including dampening the recovery underway in single-family home-building.

Simonson noted that multi-family construction has been at record rates, but housing starts and permits have recently declined by 20-30%. So, there will be a huge drop-off in multi-family once current projects finish up.

There could potentially be much more infrastructure spending in 2024, but timing is uncertain because of regulations.

“That money is there … but the timing remains highly uncertain,” he commented.

Workforce availability also remains a problem for construction, Simonson noted.

Automotive

Amici, head of the automotive think tank CAR, focused his remarks on the transition to electric vehicles (EVs).

“There was primarily ICE investment until 2019, there was the pandemic in 2020, and then there was an incredible investment in EV investment in 2021-23,” Amici said.

He noted that there has been $147 billion in auto investment in North America in the last three years alone. Some 87% of that has been in EVs and batteries, which dwarfs spending over the past 15 years. Amici pointed out this is only OEM-announced investment and does not include government spending.

Amici said about 7% has been in Mexico, 14% in Canada, and the rest in the US. Of that, 45% was in the Great Lakes region, while 55% was in the South, which includes Texas.

Looking ahead, Amici said CAR had three possible trajectories for EV market share by 2032. He said the baseline (low) was 20% by 2032. For comparison, we ended 2023 at just under 8%.

The middle trajectory (accelerated,) which includes Inflation Reduction Act (IRA) incentives such as a tax credit for EVs, was 32% by 2032.

Finally, the optimistic trajectory was 62% by 2032. This would include additional legislation added for foreign automakers to be included in credits. At present, they don’t meet the IRA requirements.

Energy

Prekel, who described Preston Pipe as a data analytics firm focused on steel pipe and tube, looked at the tubular market and the renewables sector in his forecast.

“We expect a significant amount of steel demand, primarily from wind and solar,” Prekel stated.  

He said solar is by far the fastest growing sector, increasing annually by 27% since 2017, “and it’s set to double when we look at results through 2025.”

More generally, he said we continue to see a buildup as we move through the energy transition to more renewables. “It’s a really interesting time in energy,” he commented, adding that most demand growth will come from the renewables sector.

Moving to oil and gas, he expects growth in both demand and supply will be slower than in 2023.

“But, overall, the market is going to pretty well balanced and managed by OPEC,” he noted.

The natural gas market is also very delicately balanced between consumption and exports.

Of the major regions producing natural gas, the Appalachia region is not expected to grow due to the lack of a pipeline. Most of the growth is expected to come from Louisiana and Texas, he said.

“The Biden administration just announced a pause on approval of new LNG export permits, and we’ll have to see how that plays out,” Prekel said.  

Summing up, AGC’s Simonson kept up the optimism.

“The US economy has shown great resiliency over the last four years,” he said. His more general prediction was that, barring anything unexpected on the downside, “the US economy will grow … and inflation will not spike significantly.”

The ITC’s final vote means the trade case is ending without the imposition of duties.

The trade case was filed in January 2023 by Cleveland-Cliffs Inc. and the United Steelworkers (USW) union. The petitioners had sought antidumping duties on tin- and chromium-coated sheet steel from Canada, China, Germany, the Netherlands, South Korea, Taiwan, Turkey, and the UK, as well as countervailing duties against China.

The ITC heard final arguments in the case early last month.

The US Commerce Department also made its final decision in January, finding minuscule dumping rates for all countries except China. Commerce had determined the imports from China were dumped and subsidized at rates as high as 122% and 650%, respectively.

However, it is the ITC’s final injury ruling in trade cases that determines whether duties at those rates are imposed. In this case, it ruled that the imports are not harming the domestic industry.

In a statement sent to SMU, Cleveland-Cliffs said it and the USW “clearly demonstrated material injury to the domestic industry” in this case.

“Unfortunately, the International Trade Commission was unpersuaded by our arguments. While we are disappointed by today’s ITC determination, we must respect the ruling of the Commission,” Cliffs said.

The USW did not respond to a request for comment.

Ervin has worked in steel production and processing for more than 25 years, including 19 years with Gerdau Long Steel North America.

As ASI’s new leader, he is excited to push ASI further in the areas of technological advancements, market expansion, and sustainability efforts.

Ervin replaces Jim Hrusovsky, who will be retiring in September after 10 years with the company. Hrusovsky has had a long career in the steel industry, having previously served as CEO of Essar Steel Algoma. He has also held positions with Severstal NA, ArcelorMittal, and the Timken Co.

“It has been the honor of a lifetime to serve as CEO for ASI. This is a bittersweet decision for me. I’ve worked for many companies over the years, and ASI has been the most rewarding place I’ve ever worked,” Hrusovsky commented in a statement sent to SMU.

“Chris was the perfect choice as the new CEO to help transition ASI into the future, which is very bright,” Hrusovsky added.

The two will work together during the transition until Hrusovsky’s retirement in September, according to the statement. After that, Hrusovsky “will remain “a part of the team as a consultant.”

“I would say maybe it’s going to be more than that,” Trump told Maria Bartiromo on Fox’s Sunday Morning Futures regarding a possible 60% tariff.

Note that the 60% figure Trump floated for tariffs on goods from China is significantly higher than the 10% tariff he has suggested for imports of goods from all other regions.

Recall that Trump shocked the steel market with tariffs when he was president. Citing national security concerns, he in 2018 imposed Section 232 tariffs of 25% on imported steel and tariffs of 10% on foreign aluminum.

Exceptions were later made for certain countries, including Canada, Mexico, and the EU region, among others. It has been widely speculated that a second Trump term could result in a more protectionist stance for US trade policy.

Commenting on Trump’s statement, Kevin Dempsey, president and CEO of the American Iron and Steel Institute (AISI), told SMU, “As the largest contributor to the global steel overcapacity problem, China continues to engage in widespread unfair trade practices that continue to harm American steel producers.”

Dempsey added: “AISI continues to work with Congress and the administration on policy measures to address these trade-distorting actions by the Chinese government, and will remain engaged to ensure the continued competitiveness of the American steel industry.”

The mill capability utilization rate was 76.6% in the week ended Feb. 3, up from 75.6% a week earlier yet down from 77.9% a year ago.

 Year-to-date production through Feb. 3 was 8,226,000 st at a capability utilization rate of 76.3%. That was off 0.6% from 8,274,000 st in the same period a year earlier when capability utilization was 76.1%.

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

• Northeast – 136,000 st (up 7,000 st)
• Great Lakes – 562,000 st (up 3,000 st)
• Midwest – 190,000 st (up 5,000 st)
• South – 746,000 st (up 10,000 st)
• West – 68,000 st (down 3,000 st)

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

SSAB said in a 2008 mission statement that it would work toward a “stronger, lighter, more sustainable world.” That statement “couldn’t be more valid today,” Chuck Schmitt, president of SSAB Americas, told SMU managing editor Michael Cowden in a Fireside Chat on Tuesday, Jan. 30.

Sustainable steel

Schmitt gave two products as concrete examples of that goal being realized. The first: SSAB Zero, which was announced in 2023, is made from recycled raw materials, and sports no carbon emissions. He also talked about SSAB’s fossil-free steel initiative, launched in 2016.

Another example: SSAB has a pilot plant in Oxelösund, Sweden, that has been operating since 2019-20 and that makes trial quantities of fossil-free steel. Already, thousands of tons of SSAB Zero steel have been shipped to customers in Europe, Schmitt said. Schmitt said.

“I would be remiss if I didn’t recognize our team’s efforts,” he added.

Case in point: At SSAB Americas’ Montpelier, Iowa, plate mill, the company cast its first SSAB Zero steel in January 2023. And GE Vernova, GE’s renewable energy subsidiary, has agreed to begin prototyping onshore wind towers using the SSAB Zero steel.

SSAB also operates another plate mill in Mobile, Ala.

Green premiums

When asked if customers would be willing to pay a premium for steel with fewer carbon emissions, Schmitt was unequivocal.

“Yes, for sure,” he said, noting that the some low-carbon products were still in the R&D stage. “There is a premium for added costs in order to make the product and get it to market.

He added that firms willing to pay would be “companies that share our vision of being first movers.”

Additionally, he said that carbon credits wouldn’t be necessary for producing SSAB Zero, and that it would be a “true net zero product.”

He said the mill in Iowa takes advantage of the Green Advantage Program with MidAmerican Energy, a Des Moines, Iowa-based utility. Through that program, ~98% of electricity for the Iowa mill comes from renewable sources.

Outlook and workforce availability

Schmitt was also bullish on the outlook for plate in 2024. He sees “strong fundamentals for plate this year,” citing infrastructure spending and the renewable energy sector, as well as increasing demand for plate in industrial products.

Regarding whether federal infrastructure money is already flowing in, Schmitt said, “Activity is picking up for quotes and inquiries.”

Also, he was unfazed by recent announcements of some project cancellations in the offshore wind sector due to inflationary pressures and supply chain snarls. “We still think it’s a viable market in the future,” he said, noting that the technology has been proven. He believes many projects “will be reframed and renegotiated reflective of market dynamics today.”

One issue that might prove more challenging to solve: American manufacturing in general is facing a worker shortage. And it’s challenging to come up with a “steel solution” to that problem.

“I come from four generations of steelmaking in Pittsburgh,” he said. “I take a personal interest in recruiting everywhere we can.”

To that end, SSAB Americas is involved in outreach programs in middle schools and high schools, and Schmitt said the company remains competitive with wages and health-care benefits.

“We have to step up, and we will step up,” he said. “We have a good story going on.”

“We received personal assurances that President Joe Biden has our backs,” the union wrote in a letter to its members. “He’s long demonstrated his commitment to American workers and our union, and we’re grateful for his close attention to this situation.”

The White House did not respond to SMU’s request for additional information.

USW meeting with U.S. Steel

The USW and U.S. Steel met on Friday to discuss the union’s grievances regarding contract violations as the steelmaker’s board seeks to sell the entire company to Japan’s NSC.

In the Feb. 2 letter to members, the union said the Pittsburgh-based steelmaker “showed little interest in solving problems, and indicated it will deny the grievances.”

One of the union’s issues with the proposed deal is that NSC’s Houston-based holding company, Nippon Steel North America (NSNA), will assume responsibility for the steelmaker’s labor contracts with the union.

However, the union says this is a violation of the successorship clause in its basic labor agreement that is meant to protect it from having contracts pushed down to subsidiary companies.

“While there was no resolution reached during the meeting, U.S. Steel will continue to participate in the process, maintaining that we not only complied with all requirements under the basic labor agreements, but also that the proposed acquisition by Nippon Steel is the best path forward for all employees,” USS said in statement after the meeting.

“Our USW-represented employees are an integral part of our operations today and in the future, and we look forward to continuing to work together collaboratively,” USS added.

At the time of this story’s publication, NSC had not responded to SMU’s request for comment.

I’ll divide those camps into the “mini-cyclers” and the “structural decliners” – but more on that in a moment.

The nuts and bolts

Let’s first review nuts and bolts: prices, lead times, and mill negotiation rates.

We reported on Thursday that hot-rolled (HR) coil lead times had fallen to approximately five weeks on average, their lowest level since late September. (That’s when prices hit a 2023 low of $645 per short ton). Also, approximately 80% of steel buyers reported that mills were willing to negotiate lower HR spot prices.

We in addition saw a big change when it came to galvanized lead times. They fell from approximately eight weeks on average to a little over seven weeks – also the lowest reading since late September. Another seismic shift: Nearly 80% of steel buyers said mills were willing to negotiate lower galvanized prices, up from 54% in our last check of the market.

Galvanized prices have been stickier than HR prices. That has led to the spread between HR and galvanized ballooning to ~$300/st, up from the ~$200/st that has been a rule of thumb in recent years. (I realize that ~$200/st figure still seems high to those who recall when it was more like ~$100/st.)

Will that HR-galv base spread (now $275/st) hold above $250/st, or will slide back to the post-pandemic norm of $200/st? I don’t have an answer to that. But it’s one to keep an eye on.

Looking forward

Few respondents, only 20%, think that sheet prices have already hit bottom:

But approximately 20% think they will bottom in February and another 15% think they will bottom in March. In other words, 55% see prices bottoming sometime in Q1 and then cycling upward again. That’s what I’d call the “mini-cycle” camp.

As they might see it, prices will come down from the frothy, UAW-strike, and maintenance-outage-influenced highs of late 2023. Tags will then rebound and normalize at whatever our new normal is. (Side note: Analysts at the Tampa Steel Conference agreed the “new normal” for HR would be higher than pre-pandemic levels.)

The other 45% think prices won’t bottom out until April, May, or later. That’s what I’d call the “structural decliners” camp. They might cite increased domestic capacity colliding with older capacity amid relatively flat demand.

Service centers pivot

Another big pivot has happened when it comes to how service centers are handling prices:

Approximately 40% of service center respondents tell us they are lowering prices, 60% say they are keeping prices steady, and none say they are increasing prices.

That’s a big change from our last survey:

The 10% who said they were reducing prices two weeks ago don’t look like outliers anymore. Instead, it looks like they were the beginning of a trend.

As you can see in that chart, once you’ve got 40% of service centers dropping prices, it becomes harder for others to hold the line. It’s not uncommon for the percentage of service centers reducing prices to expand to 70-80%. But after that point, we’ve found, that mills often roll out price hikes that service centers – tired of declining inventory values – are willing to support.

If this downward cycle in service center prices looks like the one we saw in Q3’23, it would last approximately 1.5-2 months. That’s how long it took the percentage of centers decreasing prices to balloon from ~40% to ~80%. And then mills would start rolling out increases again. So could we start to see increases in mid/late March or early April?

We’ll see. In the meantime, it appears that more steel buyers are reducing inventories in the face of falling prices:

The takeaway

I usually do a roundup of indicators that could be interpreted as negative for the sheet market – lower prices, shorter lead times, etc. – and then point to a few positive trends to offset the doom and gloom.

Often I note that 70-80% of survey respondents tell us that they continue to meet or exceed forecasts and/or that 80-85% say that demand is stable or improving. The good news: That remains the case.

I’ll add a new tidbit this week. It comes from what has become one of my favorite charts – where people think lead times will be in two months:

We saw what I’ll call “peak bearishness” around lead times for about six weeks in Q2 of last year. (About half of respondents predicted falling lead times during that period.) Expectations around lead times improved in the third quarter. And then prices shot up early in the fourth quarter.

Perhaps we are past peak bearishness around lead times now: 33% think lead times will be contracting in two months, down from 42% in early January. Could that be an indicator, if we follow recent mini-cycles, that prices will fall and then rebound in Q2 or early Q3?

In other words, I’m placing my bets on the “mini-cyclers”. What about you?

Coping with these challenges was the subject of a few sessions at the conference. Once the challenges are identified, however, people get to the subject of how to address the challenges. When the discussion gets to that point, you can’t help but hear axes grinding. Suggestions for addressing the problems tend to focus on the narrow interest of the person making the suggestion.

The trouble with Trump’s 10% tariff on everything

As I reported last week, former President Trump has suggested making international supply chains less relevant by imposing a 10% tariff on imports into the United States of—everything. That was a major topic at last week’s conference. Who would be helped by this and who would be hurt were also mentioned frequently. Steel and aluminum imports, including semi-finished steel and primary aluminum, are subject to 25% and 10% tariffs already (Section 232). But many of these imports are exempt from taxation because major sources are subject to quotas rather than tariffs. The results are predictable: Either the quotas are captured by major producers in the US (the destination of most slab imports are steel re-rollers), or exclusions from the tariffs. (More than 500,000 exclusion requests have been submitted since 2018, showing the reliance on international supply chains by steel using manufacturers.)

Tariffs on everything will help a few industrial consumers who compete head-to-head with imports. But all of us will have to pay more, not only those who buy imports but those who buy domestically as well. US auto producers, whether they are the Detroit Three or foreign-owned (Toyota, Nissan, Mitsubishi, Subaru, Hyundai, KIA, Volkswagen, BMW, and others), use US-produced steel almost entirely. But they like imports in the market, especially around contract time when they set prices with domestic steel producers. The 10% tariff will reduce the leverage of the auto producers in those negotiations.

That result is duplicated throughout the economy. Steel users (such as American producers of metal cans, construction contractors, and thousands of others), aluminum users (brewers, automakers, construction contractors, airplane makers, equipment makers), sugar users (candy and confectionary, food processors, chemical companies), chemical manufacturers (pharma companies, fertilizer makers for agriculture) are all in sectors downstream from major imports, and generally employ many times the workers as their upstream suppliers.

Consumers need passion to sway Congress

Yet for most of these sectors, there is little agitation. The can manufacturers are an exception. They have mounted a major effort to defeat antidumping and countervailing duties that Cleveland-Cliffs wants on tin mill steel products. The downstream consumers have strong arguments. They employ many times the workers that make “tin mill” steel products. Only one company makes tin mill products in the US, and its capacity to make tin mill products is a fraction of the demand in the US. Imports are essential. Imposing antidumping and countervailing duties could send thousands of jobs offshore.

Cliffs has a good argument too, if somewhat cynical: The law has been written by Congress over many years specifically to discount the power of these arguments from downstream consumers. Consumers prevail sometimes, but very rarely. In antidumping and countervailing duty cases, consumers really don’t count.

The International Trade Commission (ITC) will vote on whether there is “material injury” to the domestic industry producing tin mill products on Feb. 6. If the Commission finds injury, the Department of Commerce will issue antidumping and countervailing duty orders covering tin mill products. And if that happens, it will be because consumer arguments are not fully considered under the law, which barely considers consumer welfare. Other countries (and the EU) give much greater consideration to downstream harm than does the United States.

The fix for this is to reform the antidumping and countervailing duty laws. To accomplish that, advocates will face a dug-in steel industry and several others (softwood lumber, garlic, antifriction bearings), that oppose balancing consumer interests against the interests of the producers that file these cases.

Consumers fail to score on these issues largely because they have less passion than those industries that use the trade remedy laws to protect themselves. Passion is a key ingredient to success in the halls of Congress. That’s why reform, even though consumers have good arguments to make, is so difficult.

The number of active rotary rigs in the US slipped by two to 619. Oil rigs were unchanged at 499. Gas rigs fell by two to 117. Miscellaneous were flat at three.

The count of active US rigs is down by 140 from the same week last year when 759 rigs were in operation, according to the data from the oilfield services provider. There are 100 fewer oil rigs and 41 fewer gas rigs in operation, while the miscellaneous count is up by one to two.

Canada

The number of operating oil and gas rigs in Canada rose to 232, up by two from the week prior. Oil rigs decreased by three to 141. Gas rigs rose by five to 91.

Drilling in Canada is also lower year over year. There are 17 fewer rigs running now than a year ago.

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.

He was speaking on the “Trade Matters: The Value of a Flexible Steel Supply Chain” panel at the Tampa Steel Conference on Monday, Jan. 29. Joining him on the panel were Jose Gasca, managing director of Metrading International, and Brion Talley, president and CEO of JFE Shoji America.

The values that trading companies supply include risk management, reliable delivery, and problem solving.

Traders manage a risky business

While many consider importing steel to be a risky business, Talley pointed out that it’s the job of trading houses to manage that risk as professionals.

“It’s managed risk, known risk, risk we enjoy,” he noted.

Such risks include things like the Section 232 tariffs. Those levies were quickly imposed in 2018 without warning, but trading companies learned how to navigate them to keep products moving. Talley’s staff, for example, has become quite adept at working with exclusions.

Another risk in the current market is traversing the Panama and Suez canals.

Leibowitz said of fighting in the Red Sea affecting the Suez Canal: “It’s a dangerous situation but one that people in the business are managing.” Diversion is one of the key ways to manage that particular risk, he noted.

The panelists estimated that transiting the Cape of Good Hope to avoid the Red Sea adds approximately three weeks to a product’s trip.

Part of being a responsible trader is having arms-length knowledge of what’s going on in the world. Customers pay trading companies to assess the risk in situations and make informed decisions on how or where to move product, Gasca said.

Is it all about price?

While price is a part of the equation, when it comes to importing steel, a long-term business model that takes much more into account.

“Steel isn’t fungible. It’s hype that it’s all about price.”

– Lewis Leibowitz

Talley said that most customers buying offshore material are “buying month in and month out.” If customers were buying solely on price, traders wouldn’t be in business, he said. Traders need regular customers just like other companies in the supply chain.

Some products are simply not available from domestic producers because of reasons as diverse as specifications, tolerances, and alloy content, Leibowitz said. Companies buying offshore material for those reasons will continue to do so, regardless of price, unless there is some sort of “long-term, catastrophic shift,” he said.

“Trade can be a valuable part of a vibrant supply chain for US steel,” Talley added.

Talley said the drought on the Panama Canal could lead to ships choosing to go around Cape Horn in southern Chile. But he also noted that it was a manageable situation that the marketplace would sort out with time.

What we’ll talk about

Galv galore! Scrap Squeeze! Sheet Storm!

Clever catch phrases aside, we’ll talk about increased capacity not only of hot-rolled (HR) coil but also of coated products. How will that tonnage fit into the market: Will it displace imports, collide with older capacity, or ramp up into a domestic market that needs more steel?

We’ll talk about raw materials, too. The sheet market risks being oversupplied as new capacity ramps up. But could the scrap market risk becoming undersupplied as new electric-arc furnace (EAF) mills try to draw on a raw material that was once abundant but won’t be in the future?

Finally, we’ll talk news. It’s an election year. Steel will be a part of the conversation again. Former President Donald Trump said he would, if elected, block Nippon Steel’s $14.1-billion acquisition of U.S. Steel. What does that mean when valuing shares of U.S. Steel in particular and steel assets more broadly speaking?

We’ll take your questions, too. So think of some good ones and throw them in the Q&A on Wednesday!

Editor’s note: Check out SMU’s Community Chat page if you’d like to see recordings of past webinars, including our last one with CRU principal analyst and iron ore expert Erik Hedborg.

The rates are slightly different than those determined in Commerce’s preliminary findings and the previous year’s review.

These cash deposit rates will remain in effect until Commerce updates them in future administrative reviews.

If you need help accessing the survey results, or if your company would like to have your voice heard in our future surveys, contact david@steelmarketupdate.com.

Construction of Hybar’s first rebar mill is currently underway outside of Osceola, Ark. It is five months into the 22-month construction effort, with startup planned for May 2025.

Commenting on scrap, Stickler said the EAF mill will consume approximately 700,000 short tons (st) of obsolete scrap annually as its primary feedstock. As the US and Canada export around 19 million st each year, he doesn’t see an issue with finding enough of the raw material. Scrap is plentiful, he said.

When asked why Hybar picked northeast Arkansas for its location, as it’s not an area traditionally considered a significant source of scrap, Stickler said he can sit in his office and see scrap floating down the Mississippi River. Instead of sending it down to New Orleans and across the world to Turkey, he invited the barges to drop their scrap off at the Hybar mill.

Site selection for a second mill is ongoing. In consideration are a site in the southern US and another in the Pacific Northwest, he said.

Future plans in the works

When Hybar announced its plans in November 2022, just two mills were in the works. Stickler told conference attendees on Monday, Jan. 29, that his “plan is to build two or three rebar mills, then probably do something else.”

“I’d like to run a flat rolled mill and run it with 100% scrap,” he commented during his talk. He currently has a non-compete that he intends to fully honor, he said. “But some things we’ll be doing can easily translate into the flat rolled sector,” he noted.

With a number of mills envisioned, “We’re not done yet,” Stickler said. “The US is a great place to produce steel.”

Hybar’s business model

Stickler and the other project owners – his investment firm Global Principal Partners, TPG Capital, Koch Industries, and the investment fund of an unnamed high-net-worth family – believe the company will be a success, differentiating itself from others in four key areas: 1) its state-of-the-art mill will be competing with older mills, some of which are more than 50 years old, 2) it will be more environmentally sustainable, 3) it will be more nimble in its operations, and 4) it won’t be competing with its largest group of buyers.

Additional spending on infrastructure in both the US and Canada, which will boost demand for rebar, is just “icing on the cake,” Stickler added.

Commenting on competition, Stickler said, “Is there some low-hanging fruit, higher-cost competition that’s due to be replaced in rebar? The answer is yes.” Older mills can’t keep up in terms of energy efficiency, labor productivity, and environmental sustainability. These are the mills from which Hybar plans to take market share.

An area that will set Hybar apart from other rebar producers is that it will not be in the business of fabricating. Stickler said about 75% of rebar produced in North America is done so by steel companies that also fabricate the product. He mentioned that the two largest rebar producers – Nucor and CMC – are also fabricators.

This means independent fabricators have historically had to purchase from their competitors or have been forced to rely on imports. This is where Hybar will set itself apart from other producers: It does not plan to fabricate rebar. Therefore, it will not compete with its customers, most of which will be fabricators, and it will stand a better chance of getting those orders, he said.

Sustainability at the forefront

With a solar installation adjacent to it that the company will also own, Stickler said the Hybar mill will be run with 100% renewable energy. This will be a first in the global steel industry, he said.

Stickler said the SMS technology the mill will implement is even better than some of the micro mills. He said all current rebar mills use AC furnaces, while Hybar will utilize a DC furnace. While it comes with a higher price tag and is more challenging to operate, it is also much more energy efficient, utilizing just one carbon electrode vs. two or three in an AC furnace.

“Little things like this add up to our ability to stake our claim as the world’s most environmentally sustainable steel producer,” he commented.

An audience member asked about using carbon offsets. This set Stickler off, as he called them “greenwashing, smoke and mirrors, and a waste of money.”

“If you’re going to be green, don’t cheat,” he stated. If a company needs to buy credits to be considered ‘green,’ it will just increase their costs, he said, so “let them buy them. … I’m going to do it the right way.”

Check out SMU’s previous exclusive interviews with Stickler – November 2022 and August 2023 – for additional information about Hybar and its plans.

New announcements on smelter curtailments in the US, further ocean freight disruptions due to fighting in the Red Sea, and potential new tariffs on Russian aluminum in Europe, are all issues that would have previously shifted the premium one way or another overnight. However, this has not been the case at the start of 2024.

The most likely cause remains the absence of demand that would warrant a shift higher to attract more metal to the region. But the premium is slightly below replacement costs for some importers. These two competing forces have held the premium almost completely steady for close to half a year.

Trading in the first half of 2024 and into 2025 will continue, which plays into the growing sentiment for a recovery later in the year. One bright spot for the market: Domestic rollers who have gained market share over imports during the past 12 months.

MetalX announces Defiance, Ohio, as site for new slab-casting facility

Metalx announced that it has chosen Defiance, Ohio, as the site for the company’s new slab-casting facility. The site will be heavily focused on recycling and producing low-carbon slab that will help feed new domestic capacity coming online over the next two to three years. Production will be focused on 5 and 6 series alloys targeting the automotive and the beverage can markets. Total announced capacity is 100,000-120,000/mt annually, with further expansion possible.

“This is an outstanding site and met all key criteria for the project, including proximity to sources of scrap supply; ample power, gas, water and other utilities; main-line rail service; access to major highways; and, most importantly, a solid workforce environment,” MetalX CEO Danny Rifkin said.

“We are excited to expand into Ohio and are looking forward to a continued partnership with the economic development groups who helped us identify and select this site and have provided invaluable guidance through the entire process,” he added.

Novelis enters new agreement with Ardagh Metal Packaging

Novelis announced that it has signed a new contract with the US branch of Ardagh Metal Packaging for the supply aluminum beverage sheet to its facilities in North America. This new contract is the third major one that Novelis has signed in less than seven months for the beverage packaging market in North America.

This latest contract comes as Novelis is in the midst of building a new rolling and recycling plant in Bay Minette, Ala. The plant will be the first fully integrated aluminium plant built in the US in nearly 40 years and will have an initial capacity of 600,000/mt per year of finished goods for the North American beverage packaging and automotive markets.

“Finalizing another meaningful customer agreement in North America is a testament to the strength of the beverage packaging market in the region, which is being driven by consumer desire for more sustainable choices,” Novelis President and CEO Steve Fisher said.

“As a leading global supplier of sustainable and infinitely recyclable aluminum beverage cans, we’re proud of our partnership with Novelis, which shares our focus on sustainability and innovation,” Ardagh Metal Packaging CEO Oliver Graham said.

“Novelis has been part of our story since our founding, and we look forward to the new plant coming online and supporting our continued growth,” he added.

Alcoa to supply Nexans with low-carbon aluminum

Alcoa announced that it would supply global cable producer Nexans with aluminum produced from a revolutionary process that eliminates all direct greenhouse gas emissions from traditional smelting. According to the press release, Nexans will be the world’s first cable manufacturer to use metal from the breakthrough ELYSIS process, which replaces all greenhouse gas emissions with oxygen.

This latest announcement builds on the two companies’ historic long-term relationship. Alcoa already supplies Nexans with EcoLum, a primary aluminum with a carbon footprint that is nearly three times lower than the industry average.

Considering the new arrangement, several Nexans facilities in Western Europe and Scandinavia will use aluminum produced from the ELYSIS process to start qualifications for the metal’s use in various types of cables. It is believed that aluminum rod produced with this breakthrough ELYSIS technology could eliminate a significant portion of carbon dioxide emissions in the future.

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

Cooksey stocks and processes finished steel products, including plates, tubing, beams, and bars, at three locations. In 2023, the company had net sales of approximately $90 million.

Cooksey will now operate as part of Reliance’s Metals USA subsidiary.

“The addition of Cooksey strengthens and expands our position in the fast-growing Southeastern market where the company is well-known for its premium customer service, quality products, and rapid delivery standards – which is in direct alignment with the Reliance model,” Reliance President and CEO Karla Lewis said.

Reliance is North America’s largest service center group, operating more than 300 locations in 40 states and 12 countries outside of the US. It is based in Scottsdale, Ariz.

The directors of Pittsburgh-based US Steel have unanimously approved the takeover. But the White House is less sure.

President Joe Biden’s most senior economic adviser, Lael Brainard, has said: “[He] believes the purchase of this iconic American-owned company by a foreign entity, even one from a close ally, appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability.”

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