Weaker Steel Prices: Economic Implications and Industry Response

Current Trends in Steel Prices

Steel prices have shown mixed trends in 2024. STLD reported a 12% increase in average selling prices in Q1, while NUE noted a decrease across most segments. Despite recent positive order activity, STLD's Q2 realized selling values declined. Overall, prices remain above pre-pandemic levels but are moderating.

"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)

"Average selling prices decreased across most businesses within the steel products segment in the first quarter of 2024 as compared to the first quarter of 2023." --- (NUE, sec filing, 2023/Q2)

"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)

"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)

"As a result of decreased selling prices per ton, metal spread (which we define as the difference between average selling prices and the cost of purchased steel) contracted 49% in the first quarter of 2024 compared to the same period in 2023." --- (STLD, sec filing, 2024/Q1)

Financial Impact on Steel Producers

Nucor and Steel Dynamics are mitigating the financial impact of weaker steel prices by investing in higher-margin products, automation, and new technologies. Steel Dynamics is also leveraging increased demand for various steel products and managing inventory reductions to stabilize financial performance amidst declining long steel volumes.

"In raw materials, we're investing in new technologies, to enhance our scrap segregation and recovery rates, while reducing our carbon footprint. In our Steel Mills segment, each investment is aligned with our broader strategy to increase Nucor's product mix towards higher-margin, value-added products to address specific customer needs in key markets. For steel products, we're investing in automation." --- (NUE, earning call, 2024/Q2)

"Steel Dynamics 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/Q1)

"And so there will still be some increase as Sinton ramps up the second half of the year structurally, but there is also availability of inventory reduction at the long product steel mills and some of the other areas." --- (STLD, earning call, 2024/Q2)

"We don't do that, but I'll talk to you about certain levers. So we do expect, as Mark said earlier, and you would see this normally, but we will have higher on volumes, both across fabrication steel and mills recycling, as we move through the year, which is generally the case in the second, third quarter environment as you move out of the seasonality into stronger demand periods." --- (STLD, earning call, 2024/Q1)

"The long steel volumes declined quite sharply or meaningfully year-on-year." --- (STLD, earning call, 2024/Q1)

Impact on Downstream Industries

Weaker steel prices are impacting downstream industries by offsetting favorable price realizations with lower sales volumes in construction and resource sectors (CAT). Overproduction in the automotive industry has led to pricing impacts (GM), necessitating careful production management (Ford). In agriculture, softening grower sentiment affects purchase decisions (DE).

"Within Construction Industries and Resource Industries in the second quarter of 2024 as compared to the second quarter of 2023, we expect favorable price realization to be offset by the profit impact of lower sales volume." --- (CAT, sec filing, 2024/Q1)

"And I think we as an industry overproduced and you've seen a lot of that pricing impacts result from that residual value impacts etcetera." --- (GM, conference, 2024/06/11)

"Slide 6 provides our industry outlook for ag and turf markets globally. Across all our major markets, we see continued softening in grower sentiment as the combined impacts of rising global stocks, lower commodity prices, high interest rates and weather volatility weigh on customer purchase decisions." --- (DE, earning call, 2024/Q2)

"New vehicles that we have out there are turning very quickly. So I think, Emmanuel, we're at a point as an industry where we need to be very thoughtful about how we proceed from here and watch our production relative to supply very closely and the stocks on the ground at the dealers." --- (F, conference, 2024/06/11)

"We expect sales service revenues to be positive versus the prior year. In Resource Industries, we continue to expect lower sales impacted by lower machine volume, primarily in off-highway and articulated trucks, where the comparison versus the prior year is challenging." --- (CAT, earning call, 2024/Q1)

Industry Response to Weaker Prices

Steel industry leaders are adopting conservative financial strategies, enhancing pricing transparency, and reducing market volatility to navigate weaker prices. Companies like Steel Dynamics and Nucor are building cash reserves, managing backlogs, and leveraging economic conditions to maintain stability and growth opportunities amidst fluctuating demand and pricing dynamics.

"We like to be a little more conservative with the balance sheet and build cash in advance of those investments so that we can make sure that we still have optionality for growth if there would be a downturn, because we like to have that optionality, you tend to get better value and better valuations and return in a weaker demand environment. So there is room on the balance sheet." --- (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)

"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)

"We believe we've provided relevant timely pricing. And I think the market conditions over the last few months, have afforded us the opportunity just to prove our transparency in pricing." --- (NUE, earning call, 2024/Q2)

"One, they're still working through some of that higher-priced backlog that's going to - we know is going to flow through in the coming weeks and next couple of months. However, again, one of the bright spots as we think about where inflation is, unemployment is a little bit more elevated, seeing the Fed's appetite or at least intimation for some rate cuts, that certainly could have some considerable impact, particularly to the product segment that, you would see more likely in the back-half of the year, Q4 and into Q1. But again, there's - we know what our backlogs are." --- (NUE, earning call, 2024/Q2)

Future Outlook for Steel Prices

Steel Dynamics' forward-looking statements indicate that future steel prices will be influenced by global economic conditions, market dynamics in steel and related metals, and operational factors including costs and facility operations.

"Forward-Looking Statements This report contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned facilities." --- (STLD, press release, 2024/06/17)

"Forward-Looking StatementsThis press release contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, our revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned facilities and decarbonization goals and sustainability efforts." --- (STLD, press release, 2024/07/03)

"This report contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned facilities." --- (STLD, sec filing, 2024/Q1)

"This report contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned facilities." --- (STLD, press release, 2024/04/23)

"This press release contains some predictive statements about future events, including statements related to conditions in domestic or global economies, conditions in steel, aluminum, and recycled metals market places, Steel Dynamics' revenues, costs of purchased materials, future profitability and earnings, and the operation of new, existing or planned facilities." --- (STLD, press release, 2024/07/17)

Policy and Regulatory Impacts

Nucor and Steel Dynamics highlight the importance of engaging with trade and elected officials to navigate regulatory challenges. Nucor anticipates potential benefits from tax relief and reduced regulation, while Steel Dynamics does not foresee significant changes in American policy regarding carbon border adjustments.

"But we'll also compete with that in any other way we go, which is regulatory and making our trade officials and elected officials aware of it." --- (NUE, earning call, 2024/Q1)

"Barry Schneider: Well, I think our position on the carbon border adjustment mechanisms; we don't see any meaningful change in American policy." --- (STLD, earning call, 2024/Q1)

"So we're not so overweighted to offshore wind or certain elements of that, that if it changed, it would be impacting the Nucor. But on the other side of that, if those change, do you see the benefits and some tailwind from tax relief less regulation for investment moving forward?" --- (NUE, earning call, 2024/Q2)

Technological Innovations in Steel Production

Nucor and Steel Dynamics are leveraging advanced technologies to revolutionize steel production. Nucor's robotic line enhances joist production efficiency, while Steel Dynamics' mechanical rolling technology improves product quality and strength. Additionally, Steel Dynamics' shift to an integrated metals business underscores their commitment to innovative supply chain solutions.

"Joist production traditionally has been a very labor-intensive process. This new robotic line, which we have been operating now for about one year, utilizes patented robotics and vision technology, to perform the assembly and welding of joist." --- (NUE, earning call, 2024/Q2)

"It is an absolutely phenomenal technology and it's what the world is going to be using going forward. And the important things such as the product qualities that we wanted to achieve, the improved surface quality, the tougher higher-strength qualities produced through the moment mechanical rolling." --- (STLD, earning call, 2024/Q2)

"And we are no longer a pure steel company, but an integrated metals business providing enhanced supply chain solutions to the industry." --- (STLD, earning call, 2024/Q2)