Steel Industry: Navigating Price Volatility

Overview of Current Steel Price Trends

Steel prices have shown volatility, with a 12% increase in Q1 2024 compared to Q1 2023. However, Q2 2024 saw a decline in realized selling values and average prices, despite prices remaining above pre-pandemic levels. This trend has impacted earnings, reflecting the ongoing price fluctuations in the steel market.

"First quarter 2024 total steel segment average selling prices increased 12%, or $128 per ton, compared to first quarter of 2023." --- (STLD, sec filing, 2024/Q1)

"For steel products, realized prices continue to moderate. However, prices have held consistently above pre-pandemic levels and will continue to generate robust returns." --- (NUE, earning call, 2024/Q1)

"In support, we have seen a positive trend in steel order activity in recent weeks, especially for our flat rolled steel coated products. Second Quarter 2024 Comments Second quarter 2024 operating income for the company's steel operations was $442 million, lower than sequential results, as realized selling values declined more than scrap costs in the quarter." --- (STLD, press release, 2024/07/17)

"The steel products segment is expected to have moderately decreased earnings in the second quarter of 2024 as compared to the first quarter of 2024 due to lower average selling prices, partially offset by increased volumes." --- (NUE, sec filing, 2023/Q2)

"Our second quarter operating income of $559 million was 26% lower than first quarter results driven by steel metal spread contraction as pricing declined more than scrap raw material costs. Our steel operations generated operating income of $442 million, 34% lower sequentially due to average realized pricing declining $63 to $1,138 per ton, while total shipments were generally steady." --- (STLD, earning call, 2024/Q2)

Supply Chain Challenges and Disruptions

Efforts to minimize supply chain challenges are ongoing, with strategies like dual sourcing enhancing resiliency and cost savings. However, constraints persist, particularly with low carbon primary steel, where demand outstrips supply. OEMs are increasingly delving deeper into the supply chain, even securing raw material contracts to mitigate disruptions.

"We continue to work to minimize supply chain challenges that may impact our ability to meet customer demand." --- (CAT, sec filing, 2024/Q1)

"Coupled with our dual sourcing strategies, we've been able to enhance supply chain resiliency in tandem with cost savings, which has been crucial to optimizing returns amidst lower demand." --- (DE, earning call, 2024/Q2)

"Our proposal also asks GM to address potential supply chain constraints associated with low carbon primary steel and aluminum. Today in the United States, not 1 ton of primary steel or aluminum is manufactured, even though the recent U. S. Department of Energy Awards to Cleveland Cliffs and Century Aluminum will help jumpstart production of low carbon metals, demand for these metals will likely far outstrip supply." --- (GM, event transcript, 2024/06/04)

"We've seen a lot of OEMs kind of go deeper into the supply chain, kind of going more into Tier 2, Tier 3, sometimes even raw material contracts. How do you think the role of a Tier 1 or what is your wish" --- (GM, conference, 2024/05/30)

Demand Fluctuations in Key Sectors

Demand fluctuations in the steel industry are influenced by the cyclical nature of key sectors like automotive, which face political, regulatory, and economic uncertainties. Tesla's strategies to maintain vehicle affordability and competitive pricing, along with rising material costs and supply chain issues, significantly impact steel demand.

"However, we operate in a cyclical industry that is sensitive to political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, interest rate fluctuations and the liquidity of enterprise customers." --- (TSLA, sec filing, 2024/Q1)

"Automotive—Demand, Sales, Deliveries and Infrastructure Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles’ affordability and have allowed us to competitively price our vehicles." --- (TSLA, sec filing, 2024/Q1)

"With expanding economies, strategic investments in mining infrastructure, and a burgeoning urbanization trend, Asia-Pacific remains a key player, driving substantial growth and influencing the dynamics of the global nickel mining market." --- (TSLA, press release, 2024/06/27)

"At the same time, we are likely to see heightened levels of capital expenditures during certain periods depending on the specific pace of our capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability." --- (TSLA, sec filing, 2024/Q1)

"We believe that our awareness activities, paired with attractive financing, will go a long way in expanding our reach and driving demand for our products. Our Energy business continues to make" --- (TSLA, earning call, 2024/Q1)

Impact of Tariffs and Trade Policies

Tariffs and trade policies are causing significant concern in the steel industry, with potential for retaliatory measures and market disruptions. Companies like Steel Dynamics and Nucor highlight the impact on demand, pricing, and imports, stressing the need for legislative action to address trade-distorting behaviors and manage the influx of certain imported products.

"Are you concerned that some of the rhetoric that's sprung up recently could lead to more tariffs, retaliatory tariffs." --- (STLD, earning call, 2024/Q2)

"They would pull ahead demand. Lead times would then extend. Pricing would generally go up beyond, really supply demand balances, inviting imports in, inventories would balloon, and then we had to work that off, and you could see orders stop and pricing fall dramatically." --- (NUE, earning call, 2024/Q1)

"So I mean, the situation in the U.S., Mexico situation kind of worsen a bit on the trade front -- talks of tariffs, retaliation." --- (STLD, earning call, 2024/Q1)

"We appreciate the Commerce Department for making these necessary changes, but we still believe it's crucial for Congress to pass the Level the Playing Field 2.0 legislation to give commerce additional tools that address trade distorting behaviors." --- (NUE, earning call, 2024/Q1)

"So we have a great position to lead into these kind of tariffs. We do see certain coated products moving into the country that are concerning." --- (STLD, earning call, 2024/Q1)

Technological Advancements in Steel Production

Steel Dynamics and Nucor are leading technological advancements in steel production. Mark D. Millett's innovations at STLD and Nucor's Econiq-RE, made with 100% renewable energy, exemplify this progress. Both companies are investing in sustainable and efficient production methods, positioning themselves at the forefront of the industry.

""Mark has driven innovation in steelmaking and ironmaking technologies, while creating an entrepreneurial, passionate team that drives toward excellence in all that they do."" --- (STLD, press release, 2024/06/18)

"The Econiq-RE is made with 100% renewable energy and has a greenhouse gas intensity less than half that of extractive blast furnace based steel production across scopes 1, 2 and 3." --- (NUE, earning call, 2024/Q1)

"Geodynamics is levered to benefit from those programs through increased steel joist and deck demand flat and long product steel demand and the associated higher demand for recycled scrap and aluminum." --- (STLD, earning call, 2024/Q2)

"But again, leaders lead and we're going to be upfront, we're going to stay there, we're going to continue to make the investments for the long-term to position ourselves well for those customers that need and require Econiq steel." --- (NUE, earning call, 2024/Q1)

Global Economic Conditions

Macroeconomic challenges, including geopolitical tensions, inflation, and elevated interest rates, are creating global economic uncertainty, adversely impacting industries. Japan's economic growth contrasts with a forecasted global recession, highlighting diverse economic conditions. Interest rate volatility, global conflicts, and elections further complicate the outlook, while global GDP growth and shifting supply chains present mixed opportunities.

"Various macroeconomic challenges, including geopolitical tensions, inflationary pressures and elevated interest rates, have led to uncertainty in the U.S. and global economies and have adversely impacted, and may continue to adversely impact, a number of industries." --- (BAC, sec filing, 2024/Q1)

"Japan is experiencing its strongest economic growth since the '90s. Wage growth, corporate reforms, and a boom in the tech and banking sectors are attracting global investors." --- (MS, Twitter, 2024/07/11)

"The adverse economic scenario of the forecast model reflects a global recession in the second quarter of 2024 through the second quarter of 2025, resulting in an economic contraction and rising unemployment rates." --- (GS, sec filing, 2024/Q1)

"So, one, the return of a more normalized IPO market; two, the direction of volatility of interest rates; the ongoing global conflicts that we're all kind of seeing and witnessing; and then finally, as Jane mentioned in her remarks, the elections and what those outcomes look like, not just in the US but abroad." --- (C, earning call, 2024/Q2)

"So as far as this global GDP growth, there's growth opportunities for us. Even if supply chains are moving around, actually that presents opportunities." --- (BAC, conference, 2024/05/08)

Environmental Regulations and Sustainability

Steel Dynamics is actively enhancing sustainability by supplying high-recycled-content aluminum products to various sectors, including the sustainable beverage and packaging industry. Their ongoing carbon reduction strategy underscores a commitment to making a positive environmental impact.

"We are pleased to further diversify our end markets with plans to supply aluminum flat rolled products with high recycled content to the countercyclical sustainable beverage can and packaging industry, in addition to the automotive, industrial, and construction sectors." --- (STLD, press release, 2024/04/23)

"Our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with the intention to make a positive difference." --- (STLD, earning call, 2024/Q1)

"Our sustainability and carbon reduction strategy is an ongoing journey and we're moving forward with the intention to make a positive difference. Finally, for those of you on the call that track categories of our flat rolled steel shipments, in the second quarter, we shipped hot-rolled and P&O of 1,004,000 tons, cold rolled products of 124,000 tons and coated products of 1,245,000 tons. Barry?" --- (STLD, earning call, 2024/Q2)

"The state-of-the-art plan, it has served the sustainable beverage and packaging sector, automotive and industrial markets as well." --- (STLD, earning call, 2024/Q1)

Strategic Responses to Price Volatility

Efforts to shrink market volatility and create stabilization, such as providing better information for decision-making, are key strategies. Additionally, focusing on mitigating volatility and ensuring cash flow generation through all market cycles, as well as maintaining price stability in specific product lines, are effective responses to price volatility.

"And so again, the part of that and the driver for that, yes, our customers were asking and also the whipsaw that we see in ups and down markets to try and shrink that volatility to create more stabilization in the marketplace, again, giving them better information to make better value decisions for their business and get out of the price speculation that we see all too often in the hot band market." --- (NUE, earning call, 2024/Q1)

"In turn, mitigating volatility and cash flow generation through all market cycles. We are competitively positioned and continue to focus on providing superior value for our company, our customers, team members and shareholders alike." --- (STLD, earning call, 2024/Q2)

"But yes, we particularly with joist and deck, given the lead times and backlogs that we've got there that are pretty healthy, we've seen very good price stability relative price stability over the last call quarter or so." --- (NUE, earning call, 2024/Q1)