Final Thoughts

Momentum shift

Hot-rolled (HR) coil prices had rebounded to $845 per short ton (st) in early April of last year. And there was talk of them continuing to rise. Such talk stopped when Nucor’s inaugural consumer spot price (CSP) came out lower than expected.

The move gave CSP street cred. It also took the steam out of the market. And HR prices subsequently fell into the $600s/st, where they remained there for most of the rest of the year, according to SMU’s pricing records.

I’m not saying that will happen again. Yes, SMU adjusted our HR momentum indicator from upward to neutral on Tuesday. We did that because we’ve seen prices flatten out around $950/st on average. Lead times have slipped a little. (I realize some of that is because certain mills are controlling order entry.) And sentiment around April scrap prices is more subdued.

Tariff week cometh

But a lot hinges on what happens on April 2 – Liberation Day, Reciprocal Day, tariff week (April edition) – whatever you want to call it. Could we see another wave of tariffs – whether that’s sector-specific tariffs, reciprocal tariffs, or the latest iteration of IEEPA – rekindle the panic buying that characterized much of February and early March? Or might exceptions moderate their impact?

Or maybe we could see more impacts from other trade measures. We’ve already seen potential fees on Chinese-built ships cause disruptions. And the measure is expected to result in higher shipping costs.

And what might be the impact of “secondary” tariffs, such as the 25% tariff on any country that imports Venezuelan oil? Sure, a lot of that oil goes to China. But a lot also goes to Europe. Does that mean steel from, I don’t know, Italy or Spain somehow gets caught in the trade crosshairs?

Meanwhile, some of you tell me that you’re seeing some customers trying to “de-risk” their exposure to Canada. (A year ago, I never thought I’d write a sentence like that.) And others tell me that you’ve seen more demand for US melt in Mexico. Let’s say you’re making pipe in Mexico now. It’s probably not the best idea to be using coil from Asia or Europe. And that could lead to at least an incremental increase in demand, right?

Don’t forget the ‘Dirty 15’ and prelim ADs on April 3

That’s not to mention “the Dirty 15” the Trump administration is considering placing 15% tariffs on. That’s how Treasury Secretary Scott Bessent characterized the nations he said the US runs trade imbalances with.

Let’s geek out for a minute. Let’s say Europe is on that list. Is it individual European countries? Or does the entire EU count as one? Because if it’s the latter, then that leaves more room for other countries to be included. (The German Marshall Fund has a helpful analysis here.)

And while it might get less mainstream press attention, a lot also hinges on April 3, when preliminary anti-dumping duties will be posted in the coated trade case. I’ve heard from some of you that we could see hefty price increases from domestic mills if margins are as high as some think they might be.

Cliffs’ cuts bring demand back in focus

We’ve already seen the potential for tariffs to squeeze supplies and drive up prices. We saw it in 2018. And we saw it again this year. And while $1,000/st (the high end or our price range) shouldn’t have any special significance, I know some buyers are getting uncomfortable with prices that high. Especially with certain mill cutting deals at lower numbers for bigger buyers. (For example, prices a little below $900/st in the low end of our range.)

I don’t think it’s made them anyone more comfortable to see Cleveland-Cliffs cutting more than 600 jobs on the Iron Range in Minnesota. And then we learned on Tuesday that the steelmaker would be cutting about as many jobs at its Dearborn Works in Michigan, where it will be idling steelmaking operations. And especially with the reason given being “weak automotive production”- the most concentrated single market for steel in the US.

That said, I also don’t want to overstate the impact on the market. Cliffs said it would begin laying off workers at Dearborn on July 15, around the same time it will bring up the C-6 furnace at its Cleveland Works. C-6 has been idle since October, per SMU’s blast furnace status table.

Dearborn Works has a bigger furnace, with capacity of ~2.2 million tons per year. C-6 has capacity of 1.5 million tons per year. So we’re talking a loss of ~700,000 tons per year of iron-making capacity. We’ve seen Cliffs make similar cuts before as it aims to run its operations more efficiently. The poster child is arguably East Chicago, Ind., which now runs on a single (albeit very large) furnace.

I could make a fuss about the symbolism of not melting in Michigan anymore. (Dearborn has only one operating furnace.) But we saw U.S. Steel idle steelmaking at its Great Lakes Works in Michigan in 2019-20. And, of course, USS is just as involved as ever in auto.

Sure, it might at first glance not seem more efficient to melt and roll in Cleveland and finish in Dearborn, which is what Cliffs plans to do. (Recall that Dearborn in 2020 idled its hot strip mill.) That said, the pickle tandem cold mill (PLTCM) is one of the crown jewels of Dearborn. And so it makes abundant sense to continue to run that and other finishing operations.

I remember interviewing former AK Steel CEO James Wainscott about it following the acquisition of the former Severstal plant in 2014. (More than a decade ago now!) And that was one of the things he was most excited about.

I’ve heard from some of you that the WARNs at Cliffs might be aimed more at getting favorable tariff policies than at any slowdown in automotive. Maybe. Maybe Cliffs is playing politics. But I’m a little leery of conspiracy theories.

In any case, Cliffs said it would restart Dearborn Works if Trump’s trade policies result in re-shoring. And regardless of whether automotive demand has slowed, I think it’s worth asking how long that process might take.

Basically, will tariffs continue to spur investments, like the $5.8-billion South Korea’s Hyundai plans to invest in a new mill in Louisiana? Or could tariff fatigue – and a more uncertain trade and investment landscape – stymie it?

Get ready for SMU Steel Summit!

August might seem like a long way off. But SMU is already deep into the agenda for the flagship North American flat-rolled steel conference. We’ve also seen a noticeable uptick in registrations over the last few weeks.

We still have rooms left in our blocks. So register before they’re gone! You can find more details about the event, which is being held on Mon.-Weds. Aug. 25-27, here. And you can register here.