Falling prices and inflation - a "double blow" to the steel market in North America

Deteriorating prices and demand, combined with inflationary pressure on production costs, is a "double whammy" for North American flat steel producers that distinguishes this downturn from previous crises, Stelco CEO Alan Kestenbaum said Aug. 11.

“In addition to deteriorating prices and demand, our business is facing strong headwinds, including inflationary pressures on some of our key resources such as natural gas, coal and alloys,” Kestenbaum said during a conference call with the Canadian steelmaker in the second quarter. “We are concerned about this double whammy of higher costs and lower prices and are looking at how we can address these issues.”

At the start of the second quarter, the US Platts TSI Hot Rolled Coil Index hit an annual high of $1,500/t in early April ex works in Indiana. Prices have since dropped $690 apiece, hitting $810 apiece on Aug. 10, according to S&P Global Commodity Insights.

Kestenbaum said it should come as no surprise that rising interest rates are impacting steel demand in the construction and automotive sectors, the two largest steel markets in North America. However, one sector that has proven more resilient is energy, he said.

The number of U.S. oil and gas rigs fell by six to 857 in the week ended Aug. 10, energy analytics and software firm Enverus said. Despite a week-on-week decline, total US rig counts are up 10% since the end of March and 21% year-to-date.

“In terms of demand itself, there is no catastrophe, it is more a question of pricing,” Kestenbaum said, adding that service centers have abandoned purchases because they do not want to be caught off guard in the face of a weak economy.

He noted a flat price increase announced this week by an electric arc furnace competitor that could signal an end to recent price erosion.

“This is probably a good sign, and we have yet to see it,” Kestenbaum said. “...Things are in a very, very steep downturn and we haven't hit rock bottom yet. This is certainly a good sign from one of our competitors and we hope the market will follow.”

On August 8, Nucor announced an immediate increase in the price of finished sheet by a minimum of $50/st for all new orders.

Sheet buyers shared mixed feelings about the market after Nucor's price increase. Service centers noted more than two months of inventory while factories continued to seek orders, both sides hoping the market was close to bottoming out.

No updates on labor negotiations
Stelco is currently negotiating a contract with United Steelworkers, but executives have said they will not provide updates or answer questions on the topic during the call. The company's previous contract with the union expired on 30 June.

According to Randy Graham, president of USW Local 8782, in an email to S&P Global, USW members representing Lake Erie Works Stelco were scheduled to meet with a government-appointed facilitator on August 11 after the members rejected the company's offer of a contract on July 28.

If no agreement is reached, the official date for the strike will be 22 August at 00:01. "In the meantime, the committee continues to try to reach an acceptable preliminary agreement with the company," Graham said.