Key Factors Driving the Recent Decline in Steel Prices

Supply and Demand Dynamics in Steel Market

The recent decline in steel prices is primarily driven by muted customer demand and high import levels, leading to lower pricing expectations. However, optimism remains for future demand growth, particularly from automotive production and government initiatives, which could stabilize the market dynamics moving forward.

"Looking forward, we are optimistic regarding steel demand and pricing dynamics for 2024. And with that, I'll turn it over to Mark." --- (STLD, earning call, 2024/Q2)

"Scrap prices are driven by the global supply and demand for scrap and other iron-based raw materials used to make steel. Scrap prices are subject to change based on market fluctuations." --- (NUE, sec filing, 2023/Q2)

"Looking forward, we expect domestic steel demand to grow as automotive production continues to remain strong, steel imports are now unattractive, other end-user demand is healthy, and incremental steel demand stimulated by recent government legislation and manufacturing on-shoring is realized." --- (CLF, sec filing, 2024/Q2)

"Muted customer demand and the high level of imports are expected to result in lower steel pricing which is expected to negatively impact the segment’s average selling price in the second quarter." --- (X, sec filing, 2024/Q1)

"During the quarter, we experienced customer order inconsistency within the steel platform despite the steady underlying demand dynamics, as scrap prices further declined and customers continued to manage to very low inventory levels." --- (STLD, press release, 2024/07/17)

Global Economic and Trade Policy Effects on Steel Prices

Global economic conditions and trade policies are significantly impacting steel prices. U.S. Steel emphasizes a strategy to address challenges from imports and overcapacity, while ArcelorMittal notes that declining prices lead to market participants adopting a cautious approach. Increased imports are also expected to further lower prices.

"U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments." --- (X, sec filing, 2024/Q1)

"So, often what we see is that when steel prices have negative momentum, where possible market participants will be destocking, they'll be sitting on their hands taking a wait and see attitude." --- (MT, earning call, 2024/Q2)

"After decades of unfair trade practices causing harm to American steel companies and union jobs, it is no surprise to us that the United Steelworkers union (USW) adamantly opposes any transaction involving Nippon Steel, a company with an extensive track-record of injurious trade practices." --- (CLF, press release, 2024/09/05)

"U. S. Steel will continue to execute a broad, global strategy to maximize opportunities and navigate challenges presented by imports, global steel overcapacity, and international trade law and policy developments." --- (X, sec filing, 2024/Q2)

"So we had some maintenance in Q2 and so volume should improve in Q3. And then because of those recent higher levels of imports, I think we should probably assume that prices will be slightly lower quarter-on-quarter." --- (MT, earning call, 2024/Q2)

Production Costs Influencing Steel Prices

Production costs are significantly influencing steel prices, with companies like Cleveland-Cliffs reducing costs by over $250 per ton and Steel Dynamics reporting a 6% decrease in raw material costs. Nucor's lower operating expenses also contribute, indicating a trend of cost savings that could lead to further price declines.

"It's a real game changer. We are going to be reducing our costs to produce the same ton of liquid steel by more than $250 per ton." --- (CLF, earning call, 2024/Q1)

"Overall, volumes and pricing were softer than the prior quarter, but lower operating expenses more than offset these headwinds. During the second quarter, the power of Nucor's business model allowed it to generate $1.5 billion in cash from operations." --- (NUE, earning call, 2024/Q2)

"In the first half of 2024, our metallic raw material cost per ton decreased $25, or 6%, compared to the same period in 2023. In the second quarter of 2024, as a result of average selling prices decreasing more than scrap costs, metal spread (which we define as the difference between average steel mill selling prices and the cost of ferrous scrap consumed in our steel mills) decreased 7% compared to the second quarter of 2023." --- (STLD, sec filing, 2024/Q2)

"To illustrate the cost savings, our current cost to produce pig iron in Middletown is about $470 per net ton, and our current cost to produce DRI is less than $200 per net ton." --- (CLF, earning call, 2024/Q1)

"Leon Topalian: And then, Phil, the only - in terms of overall in the company, you won't notice it necessarily, but in some of the segment numbers, some of those maintenance costs at our DRI plants as we have outages do swing the - swing the cost impacts, a little bit in that segment. Philip Gibbs: How is that going for steel?" --- (NUE, earning call, 2024/Q2)

Current Inventory Levels and Market Sentiment

Current low inventory levels, especially in Europe, are creating an optimistic outlook for restocking as demand recovers. Companies like ArcelorMittal anticipate a rebound in apparent demand once real demand improves, despite current subdued economic sentiment.

"As absolute inventory levels remain low, particularly in Europe, the Company remains optimistic that restocking activity will occur once real demand begins to recover Disciplined capex investment: Capex in 2024 continues to be expected within the range of $4.5bn-$5.0bn range, including $1.4-1.5bn on our strategic growth" --- (MT, press release, 2024/08/01)

"Celso Goncalves: Hey, good morning, everyone. In Q2 we generated a strong cash flow of $362 million, driven by higher shipments, lower costs, and continued success in managing working capital and finished inventory levels." --- (CLF, earning call, 2024/Q2)

""Although overall economic sentiment remains subdued, we expect apparent steel demand ex-China to grow between +3% and +4% this year and are well positioned to benefit from this improvement."" --- (MT, press release, 2024/05/02)

"We have systematically and consistently reduced our finished steel inventory over the past two years from 3.4 million tons at the start of 2022 down to 2.4 million tons currently." --- (CLF, earning call, 2024/Q2)

"Nevertheless, given the low inventory environment (particularly Europe) as soon as real demand begins to gradually improve, apparent demand is expected to rebound." --- (MT, press release, 2024/08/01)

Outlook for Construction and Manufacturing Sectors

The outlook for the construction and manufacturing sectors indicates a decline, with expectations of flat to decreasing sales in earthmoving and compact construction equipment. Weakness in vertical construction further exacerbates this trend, suggesting reduced demand that is likely contributing to the recent decline in steel prices.

"Slide 10 gives our 2024 construction and forestry industry outlook. Industry sales expectations for earthmoving equipment in the U.S. and Canada remained flat to down 5% while compact construction equipment in the U.S. and Canada is expected to be flat." --- (DE, earning call, 2024/Q2)

"Now, I'll discuss our outlook for key end markets starting with Construction Industries." --- (CAT, earning call, 2024/Q1)

"Vertical construction or high rise construction remains very, very weak. Large is kind of an opportunistic market segment and there's just not a lot of activity there right now." --- (NUE, earning call, 2024/Q1)

"Slide 10 provides an update to our 2024 construction and forestry industry outlook. Industry sales for earthmoving equipment in the U.S. and Canada is now expected to be down 5% to 10% while compact construction equipment in the U.S. and Canada is now expected to be flat to down 5%." --- (DE, earning call, 2024/Q1)

"By segment, in both Construction Industries and Resource Industries, we expect similar margins in the second quarter compared to the prior year, as we expect favorable price to be offset by lower volume." --- (CAT, earning call, 2024/Q1)

Historical Trends in Steel Price Movements

Recent data shows a significant decline in steel prices, with ArcelorMittal reporting a 7.5% drop in average selling prices and Nucor noting an 11% decrease per ton. Despite stable domestic demand, hesitancy in buying persists due to weakening scrap prices, impacting historical price trends.

"$3.1 billion in 1H 2023 primarily driven by negative price-cost effect (predominantly on account of -7.5% lower average steel selling prices) and lower steel shipment volumes." --- (MT, press release, 2024/08/01)

"Net sales for the steel products segment decreased 22% in the first six months of 2024 compared to the first six months of 2023, due to a 13% decrease in shipping volumes and an 11% decrease in the average sales price per ton, from $2,878 to $2,560." --- (NUE, sec filing, 2023/Q3)

"Underlying domestic steel demand remains intact although steel buying hesitancy has resulted from a weakening scrap price environment." --- (STLD, press release, 2024/06/17)

"Analysis of results for the six months ended June 30, 2024 versus results for the six months ended June 30, 2023 Sales for 1H 2024 decreased by -12.3% to $32.5 billion as compared with $37.1 billion for 1H 2023, primarily due to -7.5% lower average steel selling prices and a -4.6% decline in steel shipments." --- (MT, press release, 2024/08/01)

"The long steel volumes declined quite sharply or meaningfully year-on-year." --- (STLD, earning call, 2024/1/18)