Final Thoughts

Final thoughts

Written by Michael Cowden


It’s officially fall. And here’s a funny thing about steel prices in the fall over the last few years – they tend to move in the opposite direction of the leaves.

The numbers

SMU’s hot-rolled (HR) coil price averaged $676 per short ton (st) in September 2023. That figure increased to $1,035/st in December 2023, a gain of 53% percent. (You can follow along with our pricing tool.)

We saw something similar in the fall of 2022, even if the cadence wasn’t exactly the same. SMU’s HR price averaged $642/st in November of 2022. By March 2023, it was $1,119/st – an increase of 75%.

Ditto in the fall of 2020. Our HR price averaged $568/st in September 2020. By February 2021, it was more than double that at $1,185/st on average.

In each of those cases, the prevailing market sentiment was that prices would drift lower. Or at least that there was no reason for them to go shooting upward. And then unexpected events rocked that consensus.

2023-24: UAW strike shifts buying patterns

Last year, most of the market expected that prices would fall into the fall on the UAW strike. U.S. Steel idled a furnace at Granite City, near St. Louis, citing the strike.

But then savvy consumers realized the strike-induced lows were a good time to buy big. And they pulled forward purchases that might otherwise have been made later in the year or Q1.

Also, the UAW targeted money rather than tons with a new tactic – the “stand up” strike. The union went after the most profitable automotive plants. This was a shift from prior negotiations when the union targeted all operations at a single automaker.

The result: The impact on steel consumption wasn’t as immediate as in past strikes. And automotive sales were still steady, so there was sure to be pent-up demand once the strike was resolved.

2022-23: AHMSA goes out, US left short

Rewind to the fall of 2022. Prices were drifting lower. And by November, consensus was, that there was no reason for them to stop sliding – especially with new capacity coming online.

There was an assumption that the Southwest in particular could face a glut as SDI’s new mill in Sinton, Texas, ramped up. Instead, Altos Hornos de México (AHMSA) – which had been having issues for years – unexpectedly stopped production almost entirely. Sinton, meanwhile, grappled with startup problems for longer than expected.

Instead of a glut, the region faced a shortage. And steelmakers – including some in Mexico – scrambled to scoop up tons from other suppliers, including those in the US. That sent the regional shortage in the Southwest and northern Mexico cascading into other markets, including the Midwest. And prices unexpectedly shot higher.

2020-2021: Snowmageddon!

In the fall of 2020, many in the steel market were slow to grasp the mismatch between supply and demand following pandemic shutdowns. Mills struggled to ramp up capacity (or perhaps couldn’t because of pending M&A). And inventories dwindled as lead times extended.

Then, just as the extent of the problem was becoming clear, a freak snowstorm cut power and caused outages across a wide swath of Texas and northern Mexico – exacerbating the shortages. Before long, buyers were concerned less about price than about availability.

An October surprise on the trade front?

If we were to see another price spike this fall, what could the cause be? If I had to look for a potential surprise, I’d look at the trade actions we’ve written about in recent issues.

For starters, there is the trade case against coated imports from 10 countries. Maybe it’s not being felt all that much in the Midwest yet. But talk to someone on the Gulf Coast or the West Coast, and you might get a different story. (Note that the Commerce Department will decide whether to initiate the case on Wednesday.)

Let’s consider the West Coast for a moment. UPI, which had been a big supplier of coated products, has been idled. The trade case means that Vietnamese imports, which had helped fill that void, are out of the market given the alleged dumping margin of nearly 160%. And other important suppliers to the region – notably Taiwan and Australia – also face high alleged margins.

Is demand soft now? Yes. But could lower interest rates begin to stimulate construction activity? That’s an important one to consider because construction is the biggest driver of steel demand on the West Coast. (In the Midwest, in contrast, it’s primarily automotive and manufacturing.)

True, Nucor plans to build more coating capacity at California Steel Industries (CSI), a key sheet supplier to the region. But that new capacity isn’t online yet. And if there is a shortage of coated on the West Coast, how much spare capacity is there east of the Rocky Mountains to make up for it?

As Lewis Leibowitz points out in his column today, let’s also remember that election years can lead to unusual trade policies. Does that mean we could see stricter measures against Mexico?

We’ve written before about how a lot of new capacity is coming online not only when it comes to hot strip mills but also when it comes to coating lines. Could the political goal of these trade actions – if they have a unifying theme – be to make sure all of that new domestic capacity has a home in the US?

Last thing: What about a potential widespread strike among US dock workers? Recall that a coastwide strike could begin as soon as Oct. 1. That could make bringing in foreign steel a little trickier, to say the least.

The takeaway

It’s worth considering some of these possibilities, even if you’re pretty sure that any October surprises are more likely in the presidential election than in steel.

I am not saying that prices will soar in the fall again this year. In the back half of 2021, supply caught up with demand and then overshot it. The result: Prices fell in the fall of 2021 and throughout most of 2022 as well.

Yes, there are plenty of reasons to be concerned about downside risk given uneven demand, new capacity, high inventories, etc. My point is just that it’s never wise to be complacent that a market will continue along its current trajectory. And to be on the lookout for factors that could change that trajectory.

Steel 101

Don’t miss out on SMU’s next Steel 101. It’s a great way for those new to the industry to learn the basics and for experienced folks looking to fine-tune their knowledge.

It will be held on Oct. 8-9 in Starkville, Miss., at the Courtyard Starkville MSU at The Mill Conference Center.

Students will learn how steel is made on the morning of the first day. Then they’ll see it being made at SDI Columbus in the afternoon. That experience really makes the knowledge stick.

On the second day, we’ll explore key end markets, coating extras, steel futures – and a lot more. You can find the agenda here. You can register here.

Note that this is more than just a two-day course. Our experienced instructors will remain available to help you well after the workshop has concluded.

Michael Cowden

Read more from Michael Cowden

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