Pricing - Have we hit the bottom? Stabilization is needed.

Structural tubing prices have continued to decline in October, but we may be seeing the bottom. Some sentiments are that steel prices may be at their lowest point and could begin to see flattening and even some increases in the near future. Other sentiments are that if the UAW strike continues, we will not see much upward movement in price, and steel costs will remain flat to lower. 

While structural tube prices continue to decline, mechanical tubing also follows a similar trend. Drawn Over Mandrel (DOM), Cold Drawn Seamless (CDS) and Hot Rolled Seamless (HRS) tubing are all down for the first time in years. Over the last few months, we have seen prices decline, which is the first time in over 2 years that we have seen lower costs on mechanical tubing. 

Nucor announced it will lower plate prices by $40/ton with the opening of its October order book. Nucor announced it will keep plate prices unchanged with the opening of the November order books. This follows a $40/ton price cut announced in August. Plate prices currently stand at $1,440/ton (down $20/ton from last week). (Source: SMU)

Cast Iron Pricing

There have not been any base price increases on cast iron since April 1^st of 2022. Since May of 2023, Dura-Bar’s surcharges have seen a gradual decline in price since April of 2023 and appear to remain flat going into the 4th quarter.  

Metal Production

In the week ended September 30, US raw steel production decreased 0.7% week-over-week to 1,722,000 tons (+2.3% YoY). US capacity utilization was 75.7% vs 76.4% last year.  This marks 63 consecutive weeks where capacity utilization has been below 80%. Year-to-date production is 66,770,000 tons which is down 1.3% year-over-year from 67,683,000 tons last year. (Source: AISI)

US Steel will take a 16-day planned outage on its #6 blast furnace (~1.3 million tons of annual capacity) at Gary Works. The maintenance work is reportedly part of previously planned 2023 capital projects and is not related to the currently ongoing UAW strike. US Steel does not expect any impact on customers. US Steel is reportedly laying off about 300 workers at its Granite City Work. As a reminder, US Steel previously announced that it will temporarily idle blast furnace #B to balance melt capacity with its order books. (Source: SMU)

Steel Dynamics will start early on planned maintenance at its Columbus, Mississippi, flat-rolled mill following a fire at the facility over the weekend. The company had initially planned for maintenance in November, but due to the fire, they expect to begin maintenance within the next week. (Source: Argus)

Steel Constraints & Roadblocks

The Panama Canal Authority further reduced the number of vessels that can transit through the canal given severe drought conditions. Starting November 1st only 31 ships will be allowed through the canal per day, down from 32 in August, and down from 36-38 ships during normal operations. (Source: Reuters)

Water levels on the Mississippi River continue to drop due to a lack of rain. The Mississippi is currently 10-15 feet below its average level. This could potentially disrupt the steel supply chain should the low levels persist.  (Source: SMU)

The UAW and Mack Trucks have reached a new 5-year tentative labor agreement. UAW members must ratify the new labor agreement before it takes effect. (Source: SMU)

The UAW expanded its strike calling on an additional 7,000 workers at Ford and General Motors to strike. The new strikes took place at Ford’s Chicago assembly plant that produces the Explorer, Navigator and Police Interceptor Utility vehicles, as well as at GM’s Lansing Delta Michigan assembly plant that produces the Enclave and Traverse. This expanded strike didn’t include Stellantis, which according to the Union has made significant progress (the prior expanded strikes included GM and Stellantis, but not Ford). (Source: CNBC)

Scrap & Steel Inputs

The October scrap trade kicked off, with a Detroit area mill offering to buy shredded scrap at a $20/ton month-over-month discount and prime scrap at flat prices month-over-month. (Source: AMM)

Based on the below chart, scrap pricing and iron ore seem to be aligned showing a consensus on overall US Scrap prices. As a rule of thumb, iron ore, and scrap are roughly comparable when the iron ore price is multiplied by a factor of 3.5x. The price parity line shows iron ore pricing adjusted to parity with scrap. A positive spread indicates iron ore being priced cheaper relative to scrap. (Source: SteelBenchmarker)

Lead Times

Understanding lead times for steel products is important to every participant in the supply chain. Lead times for steel products are as follows (as of 10/11/23):

DOM Tubing lead times have loosened up quite a bit. We are now anywhere from 4 to 12 weeks. Cold Drawn Seamless tubing has recently gone down as well and now stands at 12 to 24 weeks. HRS Tubing sits at 20 to 30 weeks.    

Structural Tubing mill lead times continue to be low and run approximately 2-4 weeks upon receipt of order.  

Dura-Bar Continuous Cast Iron mill lead times are shorter and approximately 1-3 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 higher last week at 5.8 weeks, slightly above the long-term average since 2016 of 5.6 weeks. Other product lead times were mixed last week with CRC lead times at 6.8 weeks, HDG lead times at 7.5 weeks, and plate lead times at 4.8 weeks. (Source: Platts)

Employment / Hiring

Approximately 0.207 million Americans filed for unemployment insurance last week. This was slightly better than economists’ expectations of 0.210 million claims, but slightly worse than last week’s upwardly revised claims number of approximately 0.205 million claims.  Continuing claims decreased slightly during the week ending September 23 (continuing claims have a week lag in terms of reporting) and stand at approximately 1.664 million continuing claims. (Source: CNBC)

Total nonfarm payroll employment rose by 336,000 in September, and the unemployment rate was unchanged at 3.8 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in leisure and hospitality; government; health care; professional, scientific, and technical services; and social assistance. (Source: U.S. Bureau of Labor Statistics)

Oil & Gas Industry

The US rig count decreased 1.1% week-over-week to 623 rigs as of 9/29.  The rig count is down 18.6% year-over-year.(Source: Baker Hughes)

Economic Factors

While inflation has come well off its 40-year highs of mid-2022, it is still considerably above the 2% level where the Federal Reserve would like it.

The consumer price index rose 3.2% from a year ago in July, slightly below expectations. The core CPI ran at a 12-month rate of 4.7%, also below the estimate. Both measures were up 0.2% on the month.

Imports/Exports