GM strike adds to steel, aluminum headwinds

The US steel and aluminum industries face further challenges as the labor strike at General Motors (GM) drags into its third week, threatening to release additional finished metal into oversupplied spot markets.

With 48,000 United Automobile Workers (UAW) union members on the picket lines since 16 September, halting operations at 33 GM manufacturing plants and 22 parts warehouses, several steel and aluminum suppliers have already seen their operations suffer.

Further hit to steel demand

A major steel service center said if the strike continues it will "start sending a ripple through the entire supply base soon."

Some market participants have already felt a sting from the strike. Another steel service center told Argus last week that customers were pulling back on their buying and that at least 20pc of their business had been impacted by the strike.

The longer the GM strike lasts, the more metal that was previously slated for consumption under contracts could end up on the spot market.

According to an Argus analysis of GM and Ducker Worldwide data, the automaker consumes around 8,600 st/day of steel and 1,600 st/day of aluminum based on second quarter vehicle sales and the average amount of each material in North American vehicles. A 30-day strike would cut an estimated 260,000st of steel and 49,000st of aluminum consumption.

Finding a home for all that excess metal would be difficult as waning US demand has already weighed on spot prices.

Since a mid-year bump to $599/st ex-works Midwest, the Argus weekly domestic US hot-rolled coil (HRC) index has declined by $44/st to $555/st as of last week as oversupply has weighed on the market. A raft of mill outages totaling more than 1mn st in October is not expected by market participants to support steel prices, but a continuation of the GM strike would drop demand at the same time as supply declines.

Cast aluminum market at risk

Some US producers of secondary aluminum alloys used in engine blocks, pistons and heads felt disruptions in demand for their products as early as last week. Their concerns are building.

"We are a Tier 1 supplier to GM on several alloys, so we felt an immediate impact of 4-6 truckloads per week," one Midwest secondary aluminum producer said. "As far as supplying other die casters and foundries, I think most producers are staying on course and using this as a time to catch up. It will be after week two or three [of the strike] that the ripple effect will be felt."

"We have had a couple customers put loads on hold because of [the strike] as their orders from GM have stopped," another Midwest smelter said.

Some suppliers are even considering workforce changes of their own if the strike persists.

"We produce a lot of truck engine block and head alloys for [GM]," a third smelter said. "I talked with one of our customers that makes pistons for GM. Their plan is to run a week to build up safety stock, then look at layoffs until GM returns to making vehicles."

Even before the GM strike, US prices for benchmark automotive alloy A380.1 were trading at their lowest level in nine years amid a glut of raw material and faltering demand. Argus assessed the alloy at 59¢-62¢/lb delivered Midwest smelter last week, down from 92¢/lb during the same week in 2018.

While cast aluminum producers are already feeling pressure, makers of wrought aluminum products such as automotive body sheet are somewhat insulated from GM's outages by the nature of their long-term sales agreements.

Secondary aluminum smelters renegotiate their contracts for cast alloy sales on an annual basis and also participate in an active spot market. Agreements for aluminum automotive sheet can be effective for the entire life of a vehicle model, as long as seven years, and leave little room for a spot market.