Final Thoughts

Sheet prices have been rising since late September, and hot-rolled coil prices aren’t very far from the $800 per ($40 per cwt) target announced by several major US sheet mills just last week.

How is that possible during what is often a seasonally slower time of year?

For starters, large buyers bought the dip in September, when HRC fell to $645 per ton on average (and well below that for big tons). The price hikes have since gained more traction than a prior round announced over the summer. And that has brought smaller buyers who had been on the sidelines back into the spot market.

Lead times for true spot material are as far out as 7-8 weeks for hot rolled and out as far as January for coated products. Inventories, meanwhile, have been moving gradually lower since the summer.

Service centers had 53.3 shipping days of supply of sheet in September, down from 56.1 days in July. We won’t have October inventory data available until mid-November. Suffice it to say that ~50-55 shipping days of supply is more comfortable when hot rolled lead times are around 3-4 weeks. That is less the case should they stretch to 6-8 weeks.

Cliffs has a good explanation of why the UAW strike hasn’t had much impact to date. Basically, the Detroit-area “Big Three” don’t account for as much steel demand as they used to. And non-union, transplant automakers continue to pull steel. Perhaps more than usual, according to Cliffs.

There had been expectations that galvanized, because of the UAW strike, could be easy to find because mills would have holes in their order books. Instead, coated is among the more difficult products to procure.

That’s partly because the strike hasn’t had an outsized impact yet. It’s also because – as evidenced by what HARDI members said today – non-automotive demand remains pretty good. (Remember, too, that the ABI is a leading indicator. It tells us less about what demand is now than what it will be 9-12 months from now.)

How long can steel continue to “Shake It Off”?

I ask that because the UAW strike started small. But the union has over the last two weeks gone on strike at three of the biggest, most-profitable truck and SUV plants in the US: Ford’s Kentucky Truck Plant in Louisville, GM’s Arlington assembly plant in Texas, and Stellantis’ Sterling Heights assembly plant in Michigan.

It’s possible that the UAW saved its heaviest hitters for the final innings of contract negotiations. If that’s the case – if a deal is closer now than a month ago – then sheet prices could shoot up as soon as a tentative agreement is reached. If the strike drags on, I don’t think the impact of it will be as negligible as it has been to date.

I’m also curious what role reduced supplies have played in all of this. Capacity utilization has been hovering around 75%, according to figures from the American Iron and Steel Institute (AISI). It hasn’t been over 80% since July 2022.

That’s remarkable when you think about it. Remember when Section 232 tariffs went into place in 2018? One of the justifications was that ~80% was necessary for the “long-term viability” of the steel industry. (The capacity utilization rate in February 2018, when a key report was released ahead of the tariffs going into effect the next month, was 73%.)

We’ve apparently come a long way since then. Steel has figured out how to make money – and plenty of it – at capacity utilization rates well below 80%.

Does consolidation play a role in that?

Speaking of which, Cliffs and Nucor didn’t say much about the U.S. Steel sales process in their earnings calls today. Cliffs of course can’t because it has signed an NDA. But CFO Celso Goncalves noted that there is still plenty of room for consolidation outside U.S. Steel.

I’m sure we can all rattle off a list of companies he might have been referring to. Just one more area to watch should steel continue to shake it off!