Auto strike risk looms over US steel market

Market: Coking coal, Metals, Pipe and tube
24/08/23

The possibility and potential widespread problems caused by an automotive union strike was the topic of most conversations at the largest US steel conference of the year.

Steel market participants at the SMU Steel Summit in Atlanta this week broadly agreed that some type of strike by the United Auto Workers (UAW) union would happen against some portion of Ford, General Motors and Stellantis.

The UAW contract expires on 14 September and a strike at any of the automakers could add thousands of tons of steel into the spot market. The union was scheduled to vote to authorize a strike today with results to be announced on Friday.

Wolfe Research managing director Timna Tanners said on 21 August in Atlanta that her firm's analysis was that a short-lived strike at a single automaker would cost steel demand equivalent to 90,000 short tons/month.

There remains uncertainty over how broad or long an auto strike will be, with UAW president Shawn Fain refusing to choose a single company to target for a strike, keeping open the possibility of a broad strike against all three major US automakers.

Speaking in Atlanta Zekelman Industries chief executive Barry Zekelman agreed that a strike would likely happen.

"[Pricing] definitely is coming off and I think it will level off, absent an auto strike, which I think there will be," Zekelman said on 21 August. "Why wouldn't there be? You have two organizations that are fighting for a strong position."

Demand from the auto industry remains among the strongest pullers of steel as auto companies work to fill up dealer lots ahead of the possible strike.

Service centers are reporting that demand broadly remains steady, with some downstream consumers experiencing slowdowns.

Many have noted that the flat steel market is oversupplied, with integrated steelmaker US Steel reporting production of 671,000st more steel than it shipped in the first half of the year at its US-based integrated and electric arc furnace (EAF) flat steel mills. While it is normal for steelmakers to produce more steel than they ship, the gap between the two metrics has widened this year at some companies.

During the same period, EAF steelmaker Steel Dynamics (SDI) said it produced 5.84mn st from its flat and long product steel mills, 301,000st higher than its external shipments.

Other EAF competitor Nucor reported its steel mills produced at 79pc and 84pc utilization rates in the first and second quarters, respectively, putting its sheet mills at a calculated production volume of 5.62mn st in the first half of the year compared with sheet shipments of 5.61mn st.

Integrated steelmaker Cleveland-Cliffs does not publish its production volumes or its utilization rates. The company is aiming to increase its 2023 shipments by more than 1mn st compared with 2022.

How US steelmakers would react to an automotive strike is an unknown, including whether any steel mill assets would be idled to reduce supply in response to the drop in demand.

When US automakers shut down in 2020 as the US economy shuttered in response to the Covid-19 pandemic, more than 20mn st/yr of blast furnace steel production went idle in response and EAF steelmakers operated at reduced rates. The idled furnaces took many months to restart, leading to record high flat hot rolled coil (HRC) spot prices in 2021 that hit $1,970/st.

The Argus US HRC Midwest and southern ex-works assessments were at $760/st on 22 August.

By Rye Druzin

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