Market Update | October 12, 2022

 

COUNTDOWN TO A POTENTIAL WORK STOPPAGE

Brotherhood of Maintenance of Way Employees Division (BMWED) rejected a labor contract with the freight railroads on Monday, sending the two sides back to the bargaining table and resetting the countdown to a potential work stoppage. BMWED represents about 26,000 workers who build and maintain the tracks, bridges, buildings and other structures on railroads across the country, according to its website. If a deal cannot be negotiated, BMWED could go on strike after Nov. 14. So far, only four of the 12 unions have ratified the national agreement with the railroads.

 

Input Costs

The recent up and down movement for zinc continued this week, as pricing dipped for the second consecutive week.

    • Zinc pricing came in at $1.33/lb this week, remaining below $1.50/lb for the fifth straight week.

 

Spot iron ore pricing increased slightly this week after sliding slightly last week and remained below $100/mt for the fourth consecutive week.

    • Spot iron ore pricing is currently at $97.05/mt, up 1.6% from the end of last week but is down 4.8% on a m/m basis.

 

Pacific Basin met coal pricing rebounded again this week, climbing to $283.50/mt.

    • Current pricing is up 4.8% from the end of last week and up 4.4% from this time last month.

 

After falling by $20/gt in September, the Chicago #1 busheling scrap price declined by another $30/gt in October.

    • Prime scrap pricing now stands at $355/gt, down 53% from the peak of $760/gt seen in April.

    • Prime scrap pricing has now fallen in six consecutive months, marking the longest consecutive monthly decline stretch in recent history.
    • We saw pricing slip 8 times over a 9 month stretch from mid-2008 to mid-2009 and a decline in 10 out of 13 months from Oct 2011 – Oct 2012.

 

 

Supply

After climbing two weeks ago, domestic raw steel production dropped last week.

    • U.S. steelmakers produced 1.680 million tons at an 75.3% utilization rate.
    • This was the lowest weekly output since the first week of January.
    • YTD production is now down 4.4% from the same time last year.

 

With the Mississippi River approaching near-record low levels, the nation’s largest steelmaker located in Mississippi County is pulling the plug on barge shipments.

    • Nucor Corp. announced it will not load barges for a few weeks to avoid having material stuck on the river.
    • Excluding volatile slab imports, the daily average is down 10.5% from August.
    • With barge companies no longer taking orders, companies are paying a premium to move everything from steel and aluminum to grain by rail and truck at prices nearly five times higher than by barge.

 

Members of the Brotherhood of Maintenance of Way Employees Division (BMWED) rejected a labor contract with the freight railroads on Monday, sending the two sides back to the bargaining table and resetting the countdown to a potential work stoppage.

    • BMWED represents about 26,000 workers who build and maintain the tracks, bridges, buildings and other structures on railroads across the country, according to its website.
    • More than 56% of BMWED membership voted against ratification of the tentative national agreement reached with the Class I freight railroads back in September.
    • If a deal cannot be negotiated, BMWED could go on strike after Nov. 14.
    • So far, only four of the 12 unions have ratified the national agreement with the railroads.

 

 

DEMAND

The recent downward price cycle and weaker import activity, combined with the uncertainty about near-future demand on rising interest rates and multi-decade high inflation, helped domestic total carbon steel consumption slow in August.

    • Total carbon steel consumption (steel shipments + imports – exports) came in at a per/day rate of 274.4 thousand tons in August, down from 282.1 thousand tons in July and was at its lowest level since February 2021.

    • August carbon flat rolled consumption came in at a rate of 139.4 thousand tons/day, up from July but below the 169.3 thousand tons/day rate in August 2021.

    • After declining in July, per/day coated flat rolled consumption rebounded in August, climbing 5.2% to 55.0 thousand tons/day.

 

Elevated construction input prices have already been a factor pressuring the shaky housing market sector in recent months.

    • According to the Producer Price Index, prices of construction materials in May 2022 reached the highest level on record, as a result of a rapid increase in material prices in 2021 and into 2022, which saw prices reach a level in May that was 15.7% higher than the level seen in the same month of 2021 and 51.7% higher than the level recorded in May 2020.

    • While there has been minimal moderation in recent months, prices remain near historic highs as of September 2022.

    • For projects at early stages of development, elevated material prices, combined with increased uncertainty around housing demand and economic activity over the coming months, could weigh on the willingness of homebuilders to move those projects ahead, increasing the risk of project delays and cancellations.

U.S. light vehicle inventory continue to recover in September, now up for the second consecutive month.

    • U.S. light vehicle inventory ended September at 1.428 million units, up 12.6% from August and up a sharp 46.8% from 972,665 units in September 2021.

 

 

ECONOMIC

The IMF (International Monetary Fund) revised their global economic forecast lower for next year.

    • The IMF is now forecasting a 2.7% growth in 2021, down from 3.2% this year, and 6% in 2021.

    • Inflation, Russia’s ongoing invasion of Ukraine, and the slowdown in China brought on by frequent COVID lockdowns and problems in their property sector, will all play a role in the slowdown.

 

 

 

 

 

 

This material, information and analyses (the “Content”) may include certain statements, estimates and projections prepared with respect to, among other things, historical data and anticipated performance.  Content may reflect various assumptions by Majestic Steel USA, Inc. concerning anticipated results that are inherently subject to significant economic, competitive and other uncertainties and contingencies and have been included for illustrative purposes.  Content is provided AS-IS.