UAW expects strike authorization; steel industry gauges impact

Authorization for the United Auto Workers union (UAW) to call a strike at one or more of the Big Three automakers appeared headed toward approval on Thursday August 24, according to a union spokesperson, bringing with it a potential sharp dip in steel demand

The potential impact on steel will depend on whether any potential strike is contained to a single automaker, or includes two or all three, as well as the duration of any walkout, according to steel industry sources.

In an interview on Thursday, a union spokesperson told Fastmarkets that “indications we’ve gotten from locals offering results anecdotally is [that support for strike authorization] is very, very strong.”

Based on those results, the union expects it will announce that it has been authorized to call a strike at a streaming event on the union’s Facebook page on Friday August 25 at 10 am, the spokesman said.

The current four-year contract expires at 11:59pm on September 14 and UAW is seeking a new contract that will raise wages 46% over the next four years and provide workers more flexibility in their work schedules.

A vote to authorize a strike is likely to be approved by more than 90% of union members, according to Arthur Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations in Buffalo.

“A vote for authorization is not an encouragement for a strike, [but instead] gives the union more bargaining power with a strike as viable threat, ” Wheaton told Fastmarkets in an interview on Thursday.

Even so, Wheaton said, “I do think a strike at Stellantis is extremely likely, with slightly lower odds at General Motors and even lower odds at Ford.”

Steel market impact

The potential impact of a strike is already being noted in declining steel prices, according to market participants.

“A strike will weaken steel prices. If there’s no demand [from the Big Three], prices will fall. You’re already seeing it in flat-rolled prices,” a Midwest distributor said. “Hot-rolled coil was almost $1,700 a [short] ton [in December 2021]. Yesterday it was just over $745 per ton, less than half that.”

Looking over a shorter time frame, Fastmarkets’ steel hot-rolled coil index, fob mill US Midwest was $1,000 per ton as recently as May 31, falling 17.94% to $820.60 by August 1, and dropping 25.48% from May 31 to August 23.

“If a strike is called for all three, it would be devastating for the US industry,” the Midwest distributor said.

The far-reaching impact would occur from the fallout on all the ancillary jobs that are tied to auto production at the Big Three, at companies “that make screws, camshafts, crankshafts and all the internals of the engine – all those [businesses] would be devastated,” he said.

“In the past unions would target just one of the Big Three, force those guys to go strike but others [working at the other two Detroit automakers] would benefit,” the Midwest distributor said.

A strike could also reward transplant automakers from Japan, South Korea and Germany with more market share, as well as companies based in Mexico and Canada, the Midwest distributor said

But a big win by UAW could also put pressure on transplants to improve wages for their workers, according to Wheaton.

A southern distributor said a Big Three UAW strike could have a big impact on the cost of scrap and production levels at steel companies.

A lot of scrap is created through the manufacturing of [auto] parts, and there will be less supply of that scrap if production is scaled back or halted.

“A lot of scrap is created through the manufacturing of [auto] parts, and there will be less supply of that scrap if production is scaled back or halted,” the southern distributor said.

“On the steel manufacturing side, do they put on the brakes?” the southern distributor asked, noting that a lot of flat-rolled mills have scheduled shutdowns that appear to have been scheduled to occur during the time a potential strike might occur.

The lack of demand from steel manufacturing, in turn, could reduce demand for scrap, leading to an increase in supply, the southern distributor said.

“It all comes down to whether or not the demand pulled out of the market [by shutdowns] helps steel pricing more than the change in supply,” the southern distributor said.

The fallout from a strike would also extend far beyond the auto industry, the southern distributor said, impacting all the companies in the supply chain and even small businesses in communities most impacted by the strike.

Negotiations

The union negotiators are focused most on Stellantis, in part because over the past 45 years accumulated gains in wages and benefits there have fallen behind those at GM and Ford, according to Wheaton.

“Stellantis is the key target first and foremost, because they have the most money. They are the most profitable. They also have the worst contract,” he said.

Union officials have indicated they are not happy with the progress of talks with Stellantis. For example, UAW president Shawn Fain posted a video recently where he dumped a copy of Stellantis’ offer in the trash can.

“Stellantis almost looks like it’s almost calling UAW out for a strike, intentionally trying to provoke them,” Wheaton said, noting that Stellantis’ offer was “way out of touch for what [UAW] wanted.”

The discussions between Stellantis and the UAW “continue to be constructive and collaborative with a focus on reaching a new agreement that balances the concerns of our 43,000 employees with our vision for the future,” a company spokesperson said. “One that better positions the business to meet the challenges of the US marketplace and secures the future for all of our employees, their families and our company.”

By contrast, “[General Motors] is trying to lower tensions and Ford is being very positive,” Wheaton said.

Ford executive chair Bill Ford said at a press event in June, “The day that our employees are considered my enemy is the day I’ll retire.”

Wheaton said he won’t rule out a potential strike at all of the Big Three, but that he expects UAW to weigh strike options carefully.

If UAW strikes only one automaker, it may eventually win the concessions it is also seeking from the other two, Wheaton said.

Additionally, even though the union has accumulated more than $800 million in its strike fund, it may decide, “Why throw away money for nothing?” if it can attain what it needs with a single company strike, Wheaton said.

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