Final Thoughts

It’s also possible that we won’t see another round of price increases for a while. There are both steel-specific and big-picture reasons for that.

The Steel Picture

Let’s start with steel. Why might another round of price hikes be unlikely now?

Recall most of the price hikes announced since late November have been accepted by the market. They were supported by a supply squeeze exacerbated by better-than-expected Q1 demand.

I don’t think that supply squeeze is going to end in the very near term. But it’s not hard to see why it’s days might be numbered.

There is an old saying that the cure to high prices is high prices. We’re arguably seeing that play out now. US Steel has restarted two blast furnaces: Mon Valley Works No. 3 and Gary Works No. 8. Mon Valley No. 8 has capacity of 2,900 tons of iron per day and Gary Works No. 8 has capacity of 3,000 tons per day. All told, that’s ~2.15 million tons per year. That’s not nothing.

We’ve also seen interest in imports increase as US price gains have outpaced those abroad. European mills, for example, could probably export to the US at higher prices than they can fetch in their home markets. That might help firm up prices in Europe. But it could also put a cap on prices in the US, or at least slow the upward momentum of domestic tags.

That’s just me speculating. But the data support the idea that imports will rise in the months ahead. Approximately 656,041 metric tons of flat-rolled steel, or 23,430 tons per day, hit US ports in February, according to preliminary Commerce Department numbers.

March data are not complete yet. Commerce last updated import license figures on March 23. At that point, the US was licensed to import 630,988 tons, or 31,550 tons per day. In other words, March import volumes will probably be higher than February. How much longer might we see imports move higher from one month to the next?

Finally, that new capacity that we’ve been writing so much about is still coming online. Will all of it hit the market initially as prime? No, you don’t flip a switch and ramp up a new mill to its rated capacity. Nor does a new mill immediately produce material that is ready for prime time. What we might start seeing are tons from new capacity going to the secondary or excess prime markets – something that will still increase supplies, broadly speaking.

So those are three reasons – the restart of existing capacity, increased imports, and new capacity – that should increase supply. Even if demand holds steady, prices should slip. And that’s assuming macroeconomic headwinds don’t dent demand.

The Big Picture

Let’s be clear, SVB was not a Lehman moment. But there has been a shift in sentiment. And it’s not just sentiment that has changed.

Reibus International, which had been expanding rapidly, recently announced approximately 50 layoffs, significant for a company of its size. It also halted expansion plans in Asia.

Reibus founder and CEO John Armstrong told SMU that the company had little direct exposure to SVB, which in any case was bailed out. It wasn’t SVB that led to those layoffs. Rather, it was pullback in venture capitalist funding in general, Armstrong indicated in his interview with Laura Miller.

Armstrong thinks pressure on regional banks, which are losing customers to bigger banks seen as safer by depositors, could make it more difficult for companies across the board to get loans. I think his point about a credit squeeze colliding with higher steel prices is worth thinking about.

Also, we shouldn’t ignore what some important indicators for major steel-consuming sectors are telling us.

The Architectural Billings Index (ABI), an important advance indicator of construction activity, has been in negative territory since October of last year. Crude oil prices settled below $70 per barrel on Friday ($69.20), one of their lowest points since late 2021. And automotive sales were lower in February than in March.

One month-over-month decline in auto sales might not be worth worrying about. What concerns me is that, according to Cox Automotive, fleet sales were up 48% in February 2023 vs. the same month last year. That’s not a great sign because fleet sales are far less profitable to automakers than sales to individuals willing to pay nearly $50k for all the bells and whistles.

Speaking of which, how many people can afford to pay that much for a new car (even with very extended payment terns) given higher interest rates and tightening lending standards? Might high prices be providing their own cure in automotive too?

Steel 101

It’s not too late to register for our Steel 101 workshop on Tues-Weds April 11-12 in Cleveland. The course will feature a tour of Cleveland-Cliffs’ Cleveland Works.

Students will learn about steelmaking in the morning, and then they’ll see the processes they’ve just learned in action in the afternoon. Not just see, I should say, but feel that heat too.

It’s that combination of learning about hot rolling and then seeing it in action that really makes the knowledge stick. You can learn more and register here.

By Michael Cowden, michael@steelmarketupdate.com