Final thoughts

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Hot Rolled Time Machine

I become a little obsessed with Summit attendance figures this time of year and comps versus prior years. With that in mind, I decided I’d also go back and check out steel prices in the weeks leading up to Steel Summit in the years since I’ve been at SMU. (I joined in January 2021.)

On the price side, hot-rolled (HR) coil averaged $830 per short ton (st) in late July 2023. We were at $770/st in late July 2022. In both years, HR prices bottomed in the lows $600s on average in the fall, according to SMU’s interactive pricing tool.

We’re in the low $600s on average already this year. Does that mean we’ve hit bottom sooner that we did in 2022 and 2023? There seem to be a few schools of thought on what comes next.

The bottom is here!

Cliffs publishes a monthly HR price. The steelmaker on Friday opened its September HR book at $670/ton. Its new price is $50/st lower than its August HR price of $720/st. But it’s roughly in line with Nucor ($650/st) and other prices indices. (SMU is at $635/st on average.) One interpretation – one also flagged on my LinkedIn page – is that Cliffs has acknowledged that price declined in July and is now attempting to set a bottom.

If you’re in that camp, you might note Cliffs latest announcement is different from its June announcement on August HR prices in on key aspect. This time, unlike that time, Cliffs said it reserved the right to adjust prices before it closes out its September book. That could leave the door open to additional increases.

A lot might hinge on what Nucor does with its weekly consumer spot price on Monday morning. SMU will bring you that news as soon as that number posts.

History says Q4

Not everyone is convinced that steel prices are poised for an uptick. They think that HR tags might scrape along roughly where they are now until Q4 – or until lead times get into Q4. (You’ll see some comments along those lines on the SMU LinkedIn page.)

If you’re in that camp, you might note that demand in some key end markets is soft – and that it’s a similar or worse story abroad. You might also reason that there is nothing to drive prices higher until Q4, which is when we saw prices rebound in 2022 and 2023. (Maybe a rate cut from the Fed by then could help?)

I haven’t mentioned 2021 yet. Why? Well, 2021 was no ordinary year for steel. The snapback in demand following the outbreak of the pandemic caught producers of just about everything – including steel – by surprise. It led to shortages and sharply higher prices.

HR was at $1860/st (!!!) on average in late July 2021. And SMU recorded HR lead times at 10-11 weeks. I was wondering at the time if we should make shirts for Summit that said “$2,000 or bust!” But in August lead times started to come back down to earth. And prices were falling (from nearly $2,000) by September. They continued to drop for the balance of the year.

As John Medich at Flack Global Metals wrote in a good column on steel futures on Thursday, 2021 was an outlier. Steel prices don’t typically decline in Q4. Another year that saw prices fall in Q4 was 2018. The usual market cycles were thrown off in 2021 by the pandemic and in 2018 by the shock of Section 232 tariffs. There has been no shock of that magnitude this year.

Keep an eye on U.S. Steel earnings

Let’s say it’s safe to say that we’re at or near a bottom – whether that’s now, once lead times get into Q4, or in Q4. The next question is whether prices will rebound sharply as they have in the past or only modestly given the impact of new capacity coming online amid subdued demand.

On the subject of new capacity, I’ve heard from some of you that Big River Steel 2 (BRS2) ramping up could put a damper on prices. Recall that BRS2 is U.S. Steel’s project to double capacity to approximately six million tons per year at its campus in Osceola, Ark.

I’d be a little careful jumping to conclusions there. Whatever the timeline is, it’s not like you flip a switch and tons start pouring out. BRS2 won’t have to contend – as SDI Sinton did – with a new site and pandemic supply chain snarls. But these things still take time. Also, U.S. Steel has some new galv lines coming up that will require substrate.

In terms of timelines, I’ve heard that BRS2 will start ramping up shortly after Labor Day. U.S. Steel declined to confirm any timeline for this article. That’s as you’d expect during the “quiet period” ahead of earnings. The company’s will release earnings after the close or markets on Thursday. I’m assuming there might be some updates on BRS2 then.

SMU will keep you posted as soon as we learn anything new!

PS – I’m hoping we might also get some updates on the planned acquisition by Nippon Steel. But that’s a topic for another Final Thoughts.