Viewpoint: US steel glut may dampen prices, profit

Persistent steel oversupply in the US may continue to dampen domestic steel prices and steel mill earnings as the market faces weak demand and rising import volumes.

Buyers told Argus the market remains oversupplied and has been for most of 2024, despite US steelmakers lowering production through the first three quarters of 2024. Raw steel production was 66.21mn short tons (st) this year through 28 September, a 1.11mn st decline from the first three quarters of 2023, according to weekly data published by the American Iron and Steel Institute (AISI).

While steel production is lower, many US buyers believe steelmakers are still producing too much material, making it easy to buy spot tons. The Argus US hot-rolled coil (HRC) lead time crossed into 2025 in mid-December, and HRC lead times have averaged 4.3 weeks in 2024, down from six weeks in 2023.

Facing these factors, US steelmakers see lower profits or even losses during the final quarter of 2024 and potentially into 2025.

The five largest steelmakers by production capacity — Cleveland-Cliffs, Commercial Metals (CMC), Nucor, SDI and US Steel — reported combined profits of $3.55bn for the first three quarters of 2024 — $4.35bn lower than the same period of 2023. In recent fourth quarter earnings guidance, Nucor and US Steel said they could post a profit and loss, respectively, at levels not seen since the third quarter of 2020.

Demand pressured by high rates

A decline in demand has been the fundamental issue this year and is expected to continue to be moving into 2025.

Many service centers reported lower steel consumption forecasts for 2025 compared to this year, outpacing any decline in US steel production.

Automotive production and steel consumption from automaker Stellantis is said to have sagged recently as that company struggles to tamp down high vehicle inventories.

High interest rates constrained demand and put pressure on buying trends.

The Associated General Contractors of America's (AGC) chief economist Ken Simonson said recently that increased federal government project announcements have not led to more construction contracts, and that spending for major private construction categories are flat or shrinking. Nonresidential construction is one of the largest consumers of steel products.

That lower trend in nonresidential spending is being masked by higher residential investment, with construction spending at $2.17 trillion on a seasonally adjusted annual rate in October, 5pc above the same period the prior year and up by 0.4pc sequentially. Much of the increase was from higher spending in residential projects.

Coupled with this lower demand, new and better operating steel mills could intensify the supply overhang.

US Steel recently started up its new 3mn st/yr Big River 2 flat steel mill in northeast Arkansas and after years of production issues, Steel Dynamics' (SDI) 3mn st/yr Sinton, Texas, mill is operating at higher rates.

Australian steelmaker BlueScope also reported that it is continuing to work on improving efficiency at its Ohio-based North Star flat steel mill, which it completed an expansion to last year.

Farm tractor sales, another consumer of flat steel, stood at 196,000 units through November, down by 30,900 units from the same period the prior year.

The higher production is coming online as steel prices are falling. The Argus US HRC Midwest assessment had a third quarter average of $680/st ex-works, down by 27pc since the first quarter average.

Import volumes adding to oversupply

Lower global steel costs have led to stubbornly elevated import volumes, despite persistent US oversupply and short lead times.

Import volumes rose to 22.3mn st in the first three quarters of 2024, up by 431,000st from the same period prior year, according to data from the US Department of Commerce.

By Rye Druzchetta