US Steel looks to capitalize on record-high prices

U.S. Steel Corp. has announced it will be building additional capacity in 2022. The new plant will have the capacity to produce 3 million tons of steel sheet a year, a bet that high demand for building products will continue. CEO David Burritt said in an interview with The Wall Street Journal, "We have the winds at our backs. Steel prices seem to be sustainable."

S&P Capital IQ data shows the average price of sheet steel as of Sept. 26, 2021, was 238.9% higher than September 2020 — when the first signs of price inflation started — but increased only 0.1% from August. Similarly, the price of steel rebar increased 50.7% year over year in the same period and the import price index for steel increased 54.3% year over year in August. The price of steel prior to that period had been in decline, falling 24.9% from September 2018 to September 2020.

The investment in U.S. capacity likely assumes that Section 232 duties on steel products will remain in place for the foreseeable future. The main U.S. trading partners for steel are Mexico and Canada, which together made up 56.2% of U.S. steel exports and 36.4% of imports in the first half of 2021. Canada and Mexico were both exempted from Section 232 duties with the United States-Mexico-Canada Agreement.

Of those three, Mexico is the only one where the U.S. has a steel surplus, or exports more steel than it imports, with the surplus increasing 508.0% year over year in the second quarter. That was lower than the second quarter of 2019 by 23.6%, indicating lasting effects from the COVID-19 pandemic. This was driven by a 147.5% year-over-year increase in imports in the quarter ended June 30.

More steel is imported from Canada than exported, with imports surging recently. The second quarter saw the deficit increase 196.4% year over year, up 219.7% versus 2019. A 159.4% year-over-year rise in imports from Canada likely drove this. The country will likely be the biggest competitor for U.S. Steel's new plant and may get a boost from sales to the Mexican market.

U.S. Steel's new plant is also likely buoyed by declining steel imports associated with major importers. July and August saw imports associated with companies like Ta Chen Stainless Pipe Co. Ltd., POSCO, O&K Co. Ltd and thyssenkrupp AG fall 69.1%, 65.9%, 49.2% and 37.2%, respectively, compared with 2019. All of these companies had seen increases in imports in the previous quarters versus 2019, and the sudden slowdown may come from supply chain congestion. The lack of progress on alleviating any tariffs on European importers may have also contributed to the lag. Competition may come from Acciaierie Valbruna SpA, which saw imports climb 82.3% in the second quarter and by 84.9% in July and August, both compared with 2019.

Eric Oak is a researcher at Panjiva, a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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