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US auto manufacturers and others facing steel shortage

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US auto manufacturers and others facing steel shortage

Highlights

Steel crunch could force shutdowns

No supply relief on immediate horizon

Pittsburgh — US automotive producers and other steel-intensive manufacturers are facing a supply shortage which could potentially lead to production shutdowns or reductions, according to numerous market sources.

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Since October, multiple flat-rolled service center sources have noted the lack of steel availability was of growing concern to OEM customers, particularly automotive, as demand was outpacing supply.

The latest Metals Service Center Institute inventory data for October showed total months on hand of carbon steel inventories at just 1.8 months with flat-rolled inventories slightly lower at 1.7.

"This is the lowest months on hand reading for carbon inventories since March 2004, indicating real demand recovery (largely auto and durables), re-stocking at the end-user levels, and still constrained global mill supply," said KeyBanc analyst Phil Gibbs in a note earlier this week.

The lack of supply has only intensified since October as already lean service center inventories faced massively extended mill lead times leaving no options to replenish stocks at a sufficient rate. Since early August mill lead times have lengthened to the longest levels in more than a decade.

Average mill lead time for HRC was now at 9.2 weeks compared to just four weeks in late July, according to S&P Global Platts data. Meanwhile cold-rolled and hot-dip galvanized lead times were out to 9.8 and 10.4 weeks from 5.2 and 6.5 weeks over the same period, respectively.

"I think it is safe to say almost every [automotive] plant in North America is at risk of slowing or shutting down," said one automotive-intensive steel source. "Some of it yes is steel and parts related. Some of it is [coronavirus-] related as well."

There was talk of two major assembly plants were already being forced to take unplanned shutdowns due to a lack of steel, but the information could not be confirmed.

One source said production at a facility had only slowed and not stopped and assumed it was parts related, as well as the Thanksgiving holiday week which would be a good time to reduce production.

While the second facility's supposed shutdowns were just planned week-long outages in November and December which "have been on the books for months," according to the source.

Another service center source serving the automotive industry said he had received a call earlier in the week about a panicked automotive OEM. The OEM was about to shutdown an assembly plant if it could not get the less than 1,000 st of steel it needed, according to the source.

The service center source said he expected it to be an exotic, hard to find automotive grade of steel but was shocked to learn it was one of the more generic grades of steel. The OEM was unable to find it anywhere and every service center contacted was out of stock and still waiting on orders from domestic mills.

"We are forecasting now that we will run out of inventory on some jobs by mid-January. We just can't get enough to build any inventory or safety stock. We are begging and appealing constantly for more tons and the orders we do have are all late, adding more stress," said a Midwest fabricator with automotive ties.

Another manufacturing source said demand was "far exceeding forecasts" and replenishing stocks was impossible given the extended mill lead times. "Right now, it doesn't matter what I am willing to pay for steel, there is not steel available to be had, beyond our normal requirements, until late January or February," added the source.

The supply woes look likely to last at least into the first quarter of 2021. This week a coronavirus outbreak at ArcelorMittal's Burns Harbor mill, 60 miles outside of Chicago, was heard to be causing notable unexpected production delays.

In addition, in Canada, ArcelorMittal Dofasco's steelmaking operations have been impacted by unexpected downtime. Following an incident at the mill last week the location will be without its No. 2 caster for the next four weeks, according to the company. In addition, the mill is also set to take down its basic-oxygen furnace for two to three weeks by the end of month for scheduled repairs, according to multiple market sources. The two outages could leave the mill with no steelmaking for up to two weeks, one source said.

US Steel was expected to restart the smallest furnace at its Gary, Indiana, mill in December but market sources expected it to provide limited relief and won't be noticed until January at best.

Any potential import relief for US buyers is at best a late first quarter aid. Turkey has been able to book its first HRC cargo into the US in more than two years but the approximately 15,000 st of material was expected to go almost unnoticed in the US.

Vietnam was also heard to be extremely active with coated sheet imports into the US with February through April arrivals with multiple sources citing the potential for more than 100,000 st of material from the country to land.