Deteriorating pricing and demand coupled with inflationary pressure on input costs is a "double whammy" for North American flat-rolled steelmakers, making this downturn different from previous troughs, Stelco CEO Alan Kestenbaum said Aug. 11.
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"On top of deteriorating pricing and demand, our business is being challenged with strong headwinds, including inflationary pressures on some of our key inputs, such as natural gas, coal and alloys," Kestenbaum said during the Canadian steelmaker's second quarter conference call. "We are concerned about this double hit of higher costs and lower prices and are looking at how we can address these challenges."
At the beginning of the second quarter, the Platts TSI US hot-rolled coil index matched a year-to-date high of $1,500/st in early April, on an ex-works Indiana basis. Prices have since fallen $690/st, hitting $810/st on Aug. 10, according to data from S&P Global Commodity Insights.
Kestenbaum said it should not be a surprise to anyone that rising interest rates are impacting steel demand in the construction and automotive sectors, the two largest end markets for North American steel. One sector that has been more resilient, however, is energy, he said.
The US oil and gas rig count fell by six to 857 in week ended Aug. 10 energy analytics and software company Enverus said. While down from the prior week, the overall US rig count is up 10% from the end of March and up 21% from the start of the year.
"There's no disaster in terms of demand itself; it's more of a pricing issue," Kestenbaum said, adding that service centers have pulled back on buying as they don't want to get caught holding onto material in the face of a weak economy.
He noted a price increase on sheet products announced this week by an electric-arc-furnace-based competitor that could signal the end of the recent price erosion.
"That's probably a good sign and we'll have to see," Kestenbaum said. "...Things have been in a really, really sharp decline and we've seen no bottom yet. Certainly this is a welcome sign from one of our competitors and hopefully the market follows."
Nucor announced Aug. 8 it would be raising finished sheet prices by a minimum of $50/st for all new orders, effective immediately.
Sheet buyers shared a mixed view of the market following Nucor's price increase. Service centers noted having upwards of two months of inventory on hand while mills continued to search for orders, both sides hoping the market was near a floor.
No update on labor talks
Stelco is currently in contract negotiations with the United Steelworkers union but executives said they would not be providing an update or responding to questions on the topic during the call. The company's previous contract with the union expired June 30.
USW members representing Stelco's Lake Erie Works were scheduled to meet with a government appointed conciliator on Aug. 11 after members rejected the company's contract offer on July 28, according to Randy Graham, president of USW Local 8782, in an email to S&P Global.
If no agreement is reached, an official strike date of Aug. 22 at 12:01 am has been set. "In the meantime, the committee continues to attempt to reach an acceptable tentative agreement with the company," Graham said.