Final Thoughts

On the one hand, there’s not much news there. It’s a continuation of the relentless week-over-week declines we’ve seen since mid/late-April. Steel prices remain on the downward trajectory they were on at the start of the year, before the war in Ukraine sent them briefly shooting higher.

On the other hand, it’s hard not to see the symbolism there. Steel prices 18 months ago were roughly where they are now – a little under $1,000 per ton. Pent-up demand and a supply squeeze stemming from the pandemic sent tags to nearly $2,000 per ton by September 2021.

Remember last summer when the talk was not so much whether we would reach $2,000 per ton but when? I do, vaguely. It feels almost like another galaxy now.

Now the talk is where the bottom might be. And just how far below $1,000 per ton HRC prices might fall. Our sentiment index seemed in my 18 months at SMU to go nowhere but up. It has more recently taken its biggest tumble since April 2020 – the early days of the pandemic when it seemed like that the economy might end.

Are we going to see what’s happening in Europe (plunging prices, furnace idlings) here on a 2-3 month lag? Or is this a good time to be a contrarian and go long when everyone is on the sidelines? I’ll leave that to smarter minds than mine to answer.

As for the news from US Steel… Wow! We’d heard some rumblings about potential furnace idlings being announced this week. This was not that.

The blast furnaces at US Steel’s Granite City Works will be handed over to SunCoke Energy Inc., which is better known in steel circles for, well, making coke. SunCoke will run those furnaces (only one of which is operating now) not to make steel but instead to make pig iron. And US Steel will continue to run Granite City’s coating lines.

The plan is also to stop steelmaking at Granite City in the second half of 2024. The plan makes sense from a lot of angles.

US Steel wants to modernize and decarbonize. Why not use older assets like the furnaces at Granite City to feed modern assets, like Big River Steel, with raw materials sourced locally. After all, we learned from the war in Ukraine that overseas supply chains, even for basic raw materials like pig iron, can be vulnerable.

That’s assuming all goes according to plan. There are the usual considerations in a big deal like this – a definitive agreement, board approval, and regulatory approvals. And then there is the question of labor.

US Steel made its big announcement this morning. There was some speculation that the United Steelworkers union might approve of it because it might solidify the prospects of other union-represented mills, such as Mon Valley Works, to continue making steel.

By late Tuesday afternoon those hopes had been dashed. USW International president Thomas Conway released a statement calling the ending of steelmaking at Granite City the latest of a string of “betrayals” by US Steel – chief among them the huge investments at Big River Steel, a non-union shop, at the expense of union-represented mills such as Granite City and Mon Valley.

One typically associated the North with union-represented integrated mills and the South with non-union EAF mills. But there are exceptions to that rule. US Steel’s Fairfield Works near Birmingham, Ala., for example. It seems a little late now, however, to speculate about what could have been if the billions now being spent at Big River had instead been invested in Fairfield.

The thing to speculate about now is what this means for contract negotiations. The USW contract with US Steel expires on Sept. 1. Conway made clear that the announcement about Granite City would be a sticking point.

Contract talks were probably already going to be difficult. I’m guessing union members want a better deal after steel seeing the highest prices ever last year and a tight labor market for much of this year. Shouldn’t workers get their share too? The thing is, steel prices are falling fast now – and there are big concerns about the overall economy.

And how do things stand with Cleveland-Cliffs, which the USW is also negotiating with. Are relations with the USW there better? Typically once one mill agrees to a contract with the USW, it’s only a matter of time until the other agrees to one as well. Will that be the case this time around as it was in 2018?

In Canada, meanwhile, contract expirations are approaching fast too. Stelco’s deal with the USW expires at the end of this month. Algoma’s expires at the end of July. There are parallels with Granite City at Algoma, where the USW faces job losses related to the closure of coke batteries once the mill shifts to EAF production.

The thing is, mills need to decarbonize to survive in a future where carbon will be a liability that you can put a price on. It’s hard to see either side willing to budge. It’s also hard to see how falling prices will make anyone more charitable about making a deal.

By Michael Cowden, Michael@SteelMarketUpdate.com