The history of American steel labor and imports has been intertwined for decades, starting with a lengthy nationwide steel strike in 1959 that introduced the country to big-time steel importing. These two sporadic but potentially huge market factors have risen to the forefront again.
Two major integrated steel mills — among the country’s top three sheet producers — have labor contract expiring at summer’s end and sheet steel buyers are already chattering about the possibility of supply disruption, and not necessarily in a negative way. That’s because the market has been mostly down or flat this year and with demand being lackluster, market players are looking for any help they could get, including a work stoppage that could tighten supply and raise prices.
A reduction in imports would also tighten supply. US sheet mills have already filed unfair trade cases against coated sheet imports and many believe dumping and/or subsidy cases against cold-rolled coil imports will soon follow.
Sheet steel suppliers are struggling to more fully reverse a 30% price drop from a year ago. The bellwether sheet product, hot-rolled coil, is selling for about $465 a short ton ex-mill. That’s up about $25/st from two months ago, but still a far cry from transaction prices around $660/st a year ago.
Before this modest recent price rise, HRC prices had fallen steadily since the beginning of the year.
With the market now stalled and the summer doldrums in full swing, US sheet market players have turned their attention to import and labor issues.
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Labor contracts at US Steel and ArcelorMittal expire September 1. There has not been a major steel strike in recent memory, and chances are work stoppages can be avoided as the United Steelworkers union and US integrated mill managers don’t butt heads like they used to. But both ArcelorMittal and USS have publicly discussed streamlining their operations, and when it comes to labor, this would be the time to do it.
Another sheet dumping case and a worker strike or lockout would certainly stir up the market. Add to that the possibility of an auto industry work stoppage when its labor contracts expire two weeks after the steel contract expirations, and the steel buying and selling game could quickly morph into multi-level chess.
That’s not to say there are not complications already. As domestic mill delivery lead times stretch out and demand stays lackluster, the market duly suspects that sheet mills are building inventory in advance of a possible strike or lockout. Whether they are expecting work stoppages or not, built-up in-house inventories give mills an important chip at the negotiating table with the United Steelworkers union.
Buyers must decide if they should be stocking up too. If a work stoppage or additional trade cases against imports materialize, they don’t want to be caught short-handed. But if they stock up at current or higher prices and there is no supply disruption, the market could suddenly become grossly oversupplied. This would leave them sitting on overpriced inventory in a possibly declining market, especially if sheet suppliers lose some business with their largest and most lucrative customers — the automakers who also face labor talks and may also be building inventories as a hedge.
Mills have held onto their modest sheet price gains despite weak-market pressure to relent. This is likely in anticipation of a tightening market later this summer, so a game of chicken has emerged between buyers and sellers, and the bigger risk seems to lie with the former.
They face the classic conundrum: Steel inventories — can’t live with ‘em; can’t live without ‘em.
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