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Demand for steel slows, triggering a drop in prices

admin by admin
September 28, 2022
in Supply Chain


For the better part of two years now, product, part and piece shortages have been the norm for a broad variety of industries and throughout the supply chain. But one material that there is plenty of is steel. Because of the glut, some of the United States’ largest steelmakers are poised to pull back on production to avoid cost overruns.

According to global markets firm CME Group, sheet prices dropped in August compared to July, continuing a month-over-month downward trend in what it costs to purchase steel. Driving the decline in prices is weak demand, as both the private and public sectors aren’t using steel for their building and infrastructure needs to the extent that they have in the past.

CME Group noted that the drop off is nationwide and its bound to have an impact on steelmakers’ production and the prices they charge.

This will also likely affect steel manufacturers’ bottom lines in terms of their quarterly earnings. In a press release, the Nucor Corporation said it’s forecasting third quarter earnings to be down from where they were in the second quarter and during the same period in 2021.

“We expect the steel mills segment earnings to be considerably lower in the third quarter of 2022 as compared to the second quarter of 2022,” the Charlotte-based steel manufacturer said in a statement. “[This is] due to metal margin contraction and reduced shipping volumes particularly at our sheet and plate mills.”

Growth in car production could trigger an uptick in demand for steel.Growth in car production could trigger an uptick in demand for steel.

The United States Steel Corporation appears to be in a similar predicament. Speaking to its third-quarter performance, U.S. Steel said it anticipated its earnings would be negatively impacted because of weaker demand and having to charge customers less to account for the surplus in supply.

From carbon to hot rolled to scrap and stainless, steel in its variety of forms is down in price. In the Institute for Supply Management’s September report tracking nationwide manufacturing activity, steel was among the commodities listed as costing less. Others include aluminum, copper, gasoline, crude oil and corn products.

Pentup demand for cars may spur renewed interest in steel
While demand for steel has cooled, suppliers remain optimistic about what the future holds. This includes Cleveland-Cliffs, North America’s largest flat-rolled steel producer that automakers turn to for their material needs. In an earnings call this past July, CEO Lourenco Goncalves said he expects demand for steel to intensify in the back half of 2022 from car makers like General Motors, Ford and other nameplates.

Citing the used car price index, Goncalves said the fact that this measure is approaching all-time highs is proof positive Americans are looking to buy. With pandemic restrictions lifted, automakers are primed to increase production to meet the needs of customers who are in the market. Dealers’ supply of all-new cars is showing signs of improvement after the pandemic led to slim pickings for buyers perusing showrooms. In August, supply averaged 43% higher than the same month in 2021, according to Kelley Blue Book. However, new-vehicle inventory remains below where it was pre-COVID.





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