State of Steel - Decemeber 2023

Pricing - What happened to leveling off? Here we go again.

Structural tubing prices have climbed dramatically over the last 2 months. Pricing is following a steep uphill climb due to the CRU index escalating so quickly. Structural tube pricing continues to be fluid and overall sentiment is that the mills are getting greedy, and the pricing does not match demand. The speculation is that it will begin dropping in February. 

Mechanical tubing seems to be following a similar trend to structural tubing. Drawn Over Mandrel (DOM), Cold Drawn Seamless (CDS) and Hot Rolled Seamless (HRS) tubing are all ticking upward. Over the last few weeks, we have seen prices increase due to an increased cost in coil and the CRU index rising. These increases are reversing the lows we have seen over the last few months. While decreases are never “announced” in mechanical tubing, we have been seeing several months now of increasing prices. For the first time in a while, DOM has seen a surcharge in December for contract pricing. 

The CRU index, which is an indication of where coil and sheet steel prices are sitting, increased $76 per ton on December 6th and now sits at $1,044 per ton. Cleveland-Cliffs announced it is increasing its base HRC prices by $100/ton to $1,100/ton, effective immediately. The increase is in line with the price increases announced last week by Nucor and Arcelor Mittal. (Source: SMU)

             

Cast Iron Pricing

There have not been any base price increases on cast iron since April 1st of 2022. Since May of 2023, Dura-Bar’s surcharges have seen a gradual decline in price since April of 2023 and remain flat going into the 4th quarter (see chart below). December surcharges saw very little change and even slightly dipped.      


Metal Production

In the week ended December 2, US raw steel production increased 0.9% week-over-week to 1.702mt (+7.1% YoY).  US capacity utilization was 74.1% vs 71.2% last year.  Year-to-date production is 81.943mt down 0.3% year-over-year from 82.226mt last year.  (Source: AISI)

US Steel will indefinitely idle Granite City’s steel making operations. Granite City has two blast furnaces, with US Steel indefinitely idling blast furnace A in April 2020, while blast furnace B had been temporarily idled since September in response to the UAW strike.  (Source: SMU)

The World Steel Association has today released its Short-Range Outlook (SRO) steel demand forecast for 2023 and 2024. Worldsteel forecasts that this year, demand will see a 2.3% rebound to reach 1,822.3 mil tons Steel demand is forecast to grow by 1.7% in 2024 to reach 1,854.0 mil tons. Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand. Next year, growth is expected to accelerate in most regions, but deceleration is expected in China. (Source: worldsteel.org)

Steel Constraints & Roadblocks

The strong post-pandemic rebound of the US economy has run its course with the Fed’s steep interest rate hikes to tackle inflation. Growth in 2023-2024 is expected to be subdued by recessionary pressure. Furthermore, the spillover from the recent SVB bankruptcy needs to be watched.  Rising interest rates as well as land and material costs are putting negative pressure on construction, particularly for the residential sector, while recovery in the non-residential sector is expected to continue.  Infrastructure is aided by recent legislation such as the 2021 infrastructure law and the Inflation Reduction Act (IRA). Steel demand from the energy sector is also expected to benefit from expanding energy production. US manufacturing sector activity has slowed from the strong post- lockdown rebound. Rising car prices, high gasoline prices, and interest rates have put downward pressure on US auto sales, and US light vehicle sales went down by a further 8.0% in 2022. They are expected to recover by 8.0% in 2023 and an additional 7.0% in 2024 with a potential decline in interest rates. However, sales will only reach 94% of the 2019 level. (Source: worldsteel.org)

According to news reports, bids for US Steel are due today. US Steel previously indicated there are multiple entities interested in buying some or all of US Steel’s assets, although no specifics have been disclosed yet. Cleveland Cliffs currently is the only company that has publicly disclosed its interest in acquiring US Steel. (Source: SMU)

Oil & Gas Industry

The US rig count increased 0.5% week-over-week to 625 rigs as of 12/1. The rig count is down 20.3% year-over-year.  (Source: Baker Hughes)

Oil fell 3% on Tuesday, with Brent crude hitting the lowest since June after U.S. consumer prices rose in November, offering more evidence that the Federal Reserve was unlikely to pivot to interest rate cuts early next year.  Brent crude futures for February fell $2.30, or 3%, to $73.73 per barrel by 1458 GMT and traded as low as $73.56, the lowest since June. U.S. West Texas Intermediate crude for January slipped $2.39, or 3.4%, to $68.93. (Source: Reuters)

Lead Times

Understanding lead times for steel products are important to every participant in the supply chain. Lead times for steel products are as follows (as of 12/12/23):

DOM Tubing lead times remain consistent.  We are now anywhere from 4 to 12 weeks depending on size. Cold Drawn Seamless tubing has recently gone up and now stands at 14 to 20 weeks. HRS tubing can be obtained on the spot market, but Timken (domestic mill) is 30+ weeks behind on their product lead times and foreign HRS is roughly 5-6 month lead times.

Structural Tubing mill lead times ticked up and run approximately 4-8 weeks upon receipt of order dependent on size.  

Dura-Bar Continuous Cast Iron mill lead times remain moderate and are approximately 2-4 weeks depending on size, grade, and finish. If it’s a large bar, special grade, size, or shape then the lead time could be longer. 

Average HRC lead times were much higher last week at 9.2 weeks, above the long-term average since 2016 of 5.6 weeks. Other products’ lead times were mixed last week with CRC lead times up to 9.3 weeks, HDG lead times up to 9.4 weeks, and plate lead times down to 5.0 weeks. (Source: Platts)

Economic Factors

The ISM Manufacturing PMI registered 46.7% in November, flat from 46.7% in October. This marks the 13th consecutive month of manufacturing contraction. (Source: SMU)

Fitch Ratings expects North American steel demand to grow modestly in 2024. Overall, sector fundamentals remain solid, supported by industry consolidation, which has led to supply discipline, and strategic investments aimed at strengthening operational profiles, which have improved through-the-cycle margins. (Source: FitchRatings)

U.S. steelmakers are on course to post higher profits in the first quarter of 2024 as prices spike from a scramble by buyers to restock following a brief halt in procurement before the strike at the Detroit Three automakers. (Source: Reuters)

Employment / Hiring

Approximately 0.220 million Americans filed for unemployment insurance last week.  This was slightly better than economists’ expectations of 0.222 million claims, but slightly worse than last week’s upwardly revised claims number of approximately 0.219 million claims.  Continuing claims decreased during the week ending November 25 (continuing claims have a week lag in terms of reporting) and stand at approximately 1.861 million continuing claims. (Source: Reuters)

In the near term, Morningstar expects slowing economic growth to cause the unemployment rate to rise to 4.2% on average in 2024 (peaking at 4.4% in the fourth quarter of 2024) from 3.7% as of November 2023, which is quite mild compared with U.S. economic slowdowns in recent decades.  Morningstar remains upbeat on labor force participation gains. Although the gains they expect after 2024 look modest, they’re actually quite optimistic when considering aging demographics. (Source: Morningstar)

Scrap & Steel Inputs

The December scrap trade kicked off this week, with a mill in Detroit offering to buy busheling and shredded scrap at a $50/ton month-over-month increase, while plate and structural grades were offered at a $30/ton month-over-month increase. (Source: SMU)

Significantly depressed scrap flows are exacerbating December’s traditional seasonal market disruptions, stoking expectations for a slew of healthy month-on-month increases on all scrap grades.  Scrap flows into yards are reportedly reduced by 30% and steel mills are hungry for tonnage, heating competition for units. With December a notoriously short month, with only two solid collection weeks in the lead-up to winter vacations, the trade is expected to be frenetic. (Source: Fastmarkets)

Imports

 

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