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Steel pricing in US will rally and economy is 'fantastic': Cliffs CEO

New York — The 21% decline in the price of US-made hot-rolled coil since the beginning of 2019 (down to $582.75/st from $740/st) has affected companies all along the steel supply chain for better or worse. But the CEO of iron ore miner Cleveland Cliffs sees a big upswing coming.

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The second half of 2019 will be "fantastic" for steel pricing in the US, Lourenco Goncalves, CEO of Cleveland-Cliffs, said in an interview Friday. The current situation, as he sees it: service centers have no inventory.

"The mills will get their pound of flesh, because the service centers allowed things to get a lot worse than they should be," said Goncalves.

Make no mistake: Goncalves wants to see higher steel prices because the price of steel HRC -- along with the IODEX and Atlantic pellet premium price benchmarks -- are three factors underpinning Cleveland Cliffs' iron ore contracts for supplying pellets to steel mills.

Goncalves explained that the price of HRC in the US is affected mostly by the buying behavior of service centers and by the buying pattern of scrap by the mini-mills.

"If the mini-mills stop buying scrap -- and allow scrap prices to go down -- and at the same time service centers go on a buyers' strike, the price of hot-rolled goes down," Goncalves said, adding that it is part of the usual, seasonal procurement behavior.

"It happens every year around June/July -- when people are on vacation and the automotive sector is changing over for the new-model vehicles; that happens every year," he said. "The only difference this year is that it started sooner -- because of [US President Donald] Trump and all this noise around trade."

As he sees it, the service centers will need to start buying soon because right now "they have no inventory."

US ECONOMY: ALSO 'FANTASTIC'

"The [US] economy is fantastic," Goncalves added.

"How do I know that? I'm building a plant in Toledo, Ohio. You know my biggest problem? Hiring people," he continued. "I have 900 people now working, and I could have a little more -- but I cannot find them -- because they are busy. There is a lot going on in this country."

Goncalves maintains that most economic problems of the Western World "are all self-inflicted -- the Fed in the US, Brexit in the UK. We don't have real problems."

Goncalves sees growth and employment as the mandate of the US Federal Reserve Bank. "Their mandate is not just inflation," he said. "Their mandate is supporting the policies that will allow this country to grow and deliver on employment."

Low unemployment, solid sustainable growth and low inflation are the keys. "We already have the low inflation. What do they want? Deflation? That could be a problem. Ask Europe if deflation is good," he added.

"The economy is doing good; real life shows that the US economy is doing good," Goncalves said.

The biggest problem for the economy right now, in Goncalves' view "is that the richest are becoming richer and the middle class is shrinking. The result of the stronger economy is not being spread out the way it should be; because capitalism is not just generating wealth -- it's spreading the wealth."

He maintains that "the general population gets poorer -- even though the economy is improving; That's a fact."

Goncalves emphasized: "We need to address this. I want Trump to address this. I don't know if he will, but that's the job of the president of the United States. I think he has good ideas. He needs to execute better and create fewer enemies on the outside. He's creating too many enemies."

-- Joe Innace, joseph.innace@spglobal.com

-- Hector Forster, hector.forster@spglobal.com

-- Edited by Derek Sands, newsdesk@spglobal.com