Three reasons US steelmakers are bullish for 2023

Executives at major flat-rolled steelmakers in the United States shared three mutual reasons for optimism about demand in 2023 during their companies’ recent earnings calls, despite the current downtrend in prices

1. Pent-up automotive demand

Executives at US Steel, Nucor Corp, Steel Dynamics Inc (SDI) and Cleveland-Cliffs believe supply chain constraints on automotive will finally ease in 2023, unleashing demand and supporting cash flows.

“Automotive is now in position to carry the market,” Lourenco Goncalves, Cleveland-Cliffs chairman, president and chief executive officer, said during the company’s earnings call on October 25. “There’s clear evidence that fleet inventories need to be replenished. … Now that they have microchips, we want each one of our automotive clients to be successful in 2023. They have a unique opportunity in 2023, as automotive may be the only sector with pent-up demand.”

“Automotive customers are already signaling higher steel consumption in 2023,” US Steel CEO David Burritt highlighted during the company’s call on October 28. US Steel also mentioned the energy and appliance end markets as other bright spots.

Leon Topalian, Nucor president and CEO, was also positive about automotive, in addition to non-residential construction and energy, during the company’s earnings call on October 20.

“You’ve got all these negative sentiments in the marketplace, and at the same time, we’ve got some positive,” Topalian said. “We’ve got automotive… forecasting an additional 1 million tons or 1 million units of new light vehicles coming into the United States in [2023].”

Mark Millett, SDI president and CEO, commented during the company’s earnings call on October 20: “We see automotive steady at current rates and we expect that to improve off low 2022 production based on the extremely low dealer inventories and pent-up vehicle demand.”

Millett mentioned that SDI has been approached by “several folks” from the automotive industry for partnerships with their new aluminium business. He also credited a strong order backlog to the strength of non-residential construction.

2. Fixed-price contracts

The steel executives were hopeful that fixed contract tons recently negotiated for next year will protect their businesses against market volatility.

Topalian said he expects volumes from Nucor’s fixed contracts, particularly with original equipment manufacturers (OEM), will be up about 15% next year.

“We see some encouraging signs in our order book and our customers’ customers are forecasting out beyond that, so again, some positive news, and again, against the backdrop that remains a little fuzzy as we walk into the new year,” he said.

SDI’s contract business is “incredibly robust,” according to Millett.

“Our backlogs are, from a volume standpoint and pricing standpoint, at historic highs, and we see that backlog well into 2023, probably about eight months from there, and it remains solid,” Millett said. “Spreads are at very high numbers, as you can see from our most recent results, and we see that volume being sustained. …The industry over the years has sort of rationalized and consolidated, and is no longer fragmented as it once was, and we see higher pricing and higher spreads being sustained through the cycle going forward.”

“[Cleveland-Cliffs’] October fixed contract renewals were another success, and the weighted average of the price increase we achieved would represent the second best October renewal cycle in our legacy company’s history, only behind last year,” Goncalves said. “But what we are going to have going forward is a much better number coming from our October tranche that we negotiated and the accomplishment is good. Of course, I’m not going to give any numbers, but we are in good shape.”

Burritt agreed: “These fixed and longer-term contracts take some of the noise out of market price fluctuations.”

3. Government investments

Developments in Washington also drew positive remarks from the steel leaders, who agreed that effects will be felt in 2023.

“During the third quarter, Congress passed the CHIPS Act and the Inflation Reduction Act, two pieces of legislation that will strengthen domestic manufacturing and create opportunities in the future for the American steel industry,” Topalian said. “We expect to start seeing the impacts of new federal infrastructure spending in 2023 as states continue to move forward with their projects.”

“You should really start seeing traction from [new legislation] in the next nine to 12 months,” SDI’s Theresa Wagler said, also referencing the Infrastructure Investment and Jobs Act. “That should support steel consumption in the US specifically, in our estimation.”

Burritt said the legislation “will positively impact steel demand in 2023 and beyond.”

The infrastructure program “should finally start to drive steel demand next year,” according to Goncalves.

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $32.38 ($647.60 per ton) on Tuesday November 8, down by 7.70% from $35.08 per cwt one week earlier and nearly a third of $94.11 per cwt a year ago.

HRC prices in the year to date peaked at $75.65 per cwt on April 8 after the start of the war in Ukraine, and have been declining ever since.

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