Introduction:
The UAW strike, which commenced on September 14, has created substantial concerns in the steel industry, particularly regarding steel demand and automobile supply. This article explores the potential consequences of the UAW strike on steel prices, focusing on historical trends, initial impacts, and potential future scenarios.
Steel Price Trends:
In September, the Raw Steels Monthly Metals Index (MMI) exhibited a 2.83% decline compared to August, reflecting a broad decrease in steel prices. Flat-rolled steel prices experienced continuous declines throughout August, with hot-rolled coil (HRC) prices plunging by 10.3%. By mid-September, prices reached their lowest point since January 2023, approaching levels last seen in December 2022.
UAW Strike and Its Impact:
The UAW strike began after unsuccessful negotiations between the union and major automakers, including Ford, GM, and Stellantis. As negotiations entered their sixth day with no agreement reached, uncertainty looms over the strike’s duration. The UAW has the financial resources to support its approximately 150,000 members in a prolonged strike, which could translate to a minimum loss of 400,000 short tons per month in domestic flat-rolled steel demand and a reduction of over 550,000 vehicles produced per month.
First Steel Blast Furnace Casualty:
U.S. Steel’s Granite City Works blast furnace B was the first casualty of the strike, leading to the temporary idling of the 1.4 million-short-ton-per-year furnace. Further cuts in steel production may follow, contingent on the strike’s duration. During the strike’s initial week, the capacity utilization rate remained above 75% at 76.2%, and weekly raw steel production held steady at 1,733,000 tons.
Mill Lead Times and Market Dynamics:
Mill lead times for flat-rolled steel were already on the shorter side of their historical range. By mid-September, HRC lead times averaged around 4.5 weeks, comparable to levels seen since 2019. Cold-rolled coil (CRC) and hot-dip galvanized (HDG) lead times stood at seven weeks, slightly below their respective historical averages. In anticipation of reduced domestic steel demand, mills offered significant discounts on larger volumes, aiming to mitigate the impact on an already oversupplied market.
Historical Impact of UAW Strikes:
The current UAW strike is unique as it marks the first time all three major automakers face concurrent strikes by the union. Previous UAW strikes, such as the one at GM in 2019, have led to significant declines in steel prices. During the GM strike, HRC prices fell by nearly 16%, with CRC and HDG prices also dropping by around 10%. Steel prices started to recover once an agreement was reached between GM and the UAW, although the current bearish dynamics in the flat-rolled steel market may weigh on any potential price rebound.
Protracted Strike and Its Potential Impact:
The duration and scope of the ongoing UAW strike will significantly influence the steel market. Automakers had increased production before the strike to mitigate shortages, but prolonged strikes could impact vehicle availability for affected models. This, in turn, could provide support to steel prices when production resumes and automakers attempt to catch up. However, if the strike extends beyond six weeks or more, it may lead to more substantial contractions in both steel prices and production levels, particularly if the UAW expands its strike efforts. Free-falling steel prices could force steelmakers to make more significant capacity cuts, potentially resulting in a sharper rebound once auto production resumes. Steelmakers may also choose to keep some capacity idle to raise prices to a more advantageous range.
Conclusion:
The UAW strike has introduced a considerable degree of uncertainty into the steel industry, with potential consequences for both steel prices and production levels. Historical UAW strikes have shown that steel prices can experience significant declines during such labor disputes, and the current market conditions may further exacerbate this trend. The length of the strike and its impact on automakers and steel producers will be crucial factors in determining the ultimate outcome for steel prices in the wake of this historic labor strike.