Three themes from US steelmakers’ Q2 2022 earnings calls

Executives at major flat-rolled steel producers in the United States discussed three common themes during their companies’ earnings calls for the second quarter of 2022, sharing views on a potential recession, affects from recent government policy changes and trends in steel raw materials

Potential recession

Executives at US Steel, Nucor Corp, Steel Dynamics Inc (SDI) and Cleveland-Cliffs Inc offered mixed opinions on the economic outlook.

“Let’s face it, there’s a lot of uncertainty — some people say more uncertainty than ever before,” US Steel chief executive officer David Burritt said during the company’s earnings call on Friday July 29. “I’m not so sure that’s true, but we do know that these are different times — challenging times — and we need to make sure that what we say we’re going to do, we do, and that’s something that we haven’t always been able to say.”

When asked about future investments, Burritt said: “We’re going to let the economy tell us what the solution is here, but don’t look for anything big anytime soon.”

Other executives seemed more optimistic.

While we recognize there is considerable economic uncertainty right now, demand appears stable and resilient across our key end-use markets
Steve Laxton, Nucor chief financial officer

“While we recognize there is considerable economic uncertainty right now, demand appears stable and resilient across our key end-use markets,” Nucor chief financial officer Steve Laxton said during the company’s earnings call on Thursday July 21.

“All we can do, or all I can do, is look through the lens of our order book,” SDI president and CEO Mark Millett said during the company’s earnings call on July 21. “Order activity has remained pretty strong. There was a little softness in hot-rolled coil, and that’s rebounding... There seems to be a cloud out there... [but] through our order book, we don’t see it.”

Economic factors that are typically considered headwinds could be a boon for end markets such as automotive, according to Cliffs chairman, president and CEO Lourenco Goncalves.

“As we read through the current economic conditions in the country, which include 40-year-high inflation levels and rising interest rates yet consistently low unemployment, we have all the ingredients for the dynamics of the past two years to shift in our favor,” he said during the company’s earnings call on Friday July 22. “It has been over two years of construction outpacing automotive, but that’s no longer the case.”

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $41.05 per hundredweight ($821 per short ton) on Friday August 5, down by 56.33% from $94 per cwt a year prior.

Government policy

The executives discussed the impacts from recent government spending packages for semiconductor chip manufacturing and infrastructure.

The CHIPS and Science Act - a $280-billion bill that supports reshoring production of microchips and other manufactured components to compete with China - passed the Senate on July 27 and is now being considered by the House of Representatives.

“Alleviating the semiconductor bottleneck is critically important, and it’s taken longer than anybody imagined, and it’s still going to take longer,” Burritt said. “There’s a lot to be done, but we’ve seen in auto consistent order entry rates across the diversified domestic and foreign [original equipment manufacturers], and this steady pace of pull has allowed us to use some auto-oriented assets to service other pockets of accelerating demand to optimize loading.”

Said Millett: “We expect the automotive arena to remain strong and probably improve as the chip issue mitigates. The chip shortage actually for us is a good thing. It’s effectively extending the auto cycle and just given us a market that’s going to be strong for longer.”

Regarding the Infrastructure Investment and Jobs Act, which became law in November and stipulates that projects can only use steel that is melted and poured in the US, Topalian noted: “We’re not seeing any real movement in terms of material orders. We really think that will start in earnest in early [2023] and really begin to progress throughout the year 2023.”

Said Burritt: “We expect to see the benefits of that come through sometime next year.”

Some executives also applauded the International Trade Commission’s recent extension of anti-dumping and countervailing duties on corrosion-resistant steel products from China, India, Italy, South Korea and Taiwan.

Fastmarkets’ biweekly assessment for steel hot-dipped galvanized 0.012 inch G30, ddp Houston was $1,280-1,360 per short ton ($64-68 per cwt) on Wednesday August 3, down by 32.99% from $1,940-2,000 per ton on August 4, 2021.

Fastmarkets’ weekly price assessment for steel hot-dipped galvanized coil (cold-rolled base), fob mill US declined by 44.34% to $59 per cwt on Thursday August 4 from $106 per cwt in the same week in the previous year.

Steel raw materials

The executives shared observations about scrap market dynamics and sourcing strategies for metallics, including pig iron.

“We are seeing a lot less competition for prime scrap,” Goncalves said. “At the beginning, we had to really fight to get the deals done, but now, apparently, the competition is not really looking for prime scrap. They should have their reasons. To be honest with you, I don’t care. For us, prime scrap is important. We prefer to use prime scrap.”

Prime scrap allows Cliffs to use less coke, and thus generate fewer carbon dioxide emissions, according to Goncalves. Cliffs’ prime scrap is sourced via a closed loop with its customers, allowing for better price negotiations too, he said.

Millett noted that the spread between No1 busheling and shredded scrap has “normalized,” and the company is pursuing a captive supply of pig iron.

The spread between prime and shredded scrap has almost evaporated in the August domestic settlement.

Nucor executive vice president of raw materials and logistics Doug Jellison said the company halved its reliance on pig iron during the quarter, reducing the steelmaker’s greenhouse gas emissions and cutting inventory.

Burritt discussed plans for US Steel’s mini-mill segment to increase its internal sourcing of metallics to 40% by 2024 from 10% currently, thanks to recently announced investments in a pig iron caster at its Gary Works facility and a partnership with SunCoke Energy, which plans to acquire the steelmaker’s Granite City mill.

Fastmarkets’ assessment for pig iron, import, cfr Gulf of Mexico, US was $500-520 per tonne on August 5, down by 13.92% from $585-600 per tonne in the same week last year.

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