The North American Steel Industry in 2022: Far From a “Falling Knife”

Resource Erectors Heavy Industry Watch 2022

US steelmaker stocks took a hit last week after an outstanding year for the North American steel industry throughout 2021. The sell-off came after one Canadian CEO fell on his own sword by predicting that the North American Steel market in 2022 is analogous to “a falling knife”.

Share prices for Canadian producer Stelco, the Hamilton, Ontario-based steelmaker, fell 4.7% last week in Toronto. The negative ripple affected Nucor Corp., U.S. Steel Corp., and Cleveland-Cliffs Inc. all of which erased gains for the day. An index of 14 steel companies revealed price drops up to, wait for it…1.7%. 

That meager 1.7% decline in share prices was the result of one steel-producing CEO going public in hysterical Chicken Little mode, but it rang a false alarm bell with the informed industry watchers here at Resource Erectors. 

As for the North American steel market, Stelco CEO Alan Kestenbaum needs to speak for Canada’s steel sector alone. In the US the future for steel is brighter than ever

The Falling Knife Analogy Falls Flat Outside of Canada

“It’s a falling knife,” Stelco Chief Executive Officer Alan Kestenbaum said in a recent interview. “The question is when does it go the other way and where are we in the economic cycle? I think it turns at some point, but I don’t know where it bottoms out.”- Steelmaker CEO warns North America market a ‘falling knife’- Mining.com January 20, 2022

The “falling knife” mentality may be taking a cut of the Canadian steel industry where the “progressive” government’s draconian covid-phobia shutdowns have completely disrupted the economy. But record prices in the US have steelmakers here more concerned about a surge of imports honing in on the lucrative domestic steel market due to attractive record-breaking steel prices in 2021. 

The Platts TSI US hot-rolled coil index was assessed at $1,500/st EXW Indiana at the end of 2021, up from $1,009/st at the beginning of the year, but down from a record $1,960.25/st in September. – S&P Global Platts-US steel imports seen rising in 2022

With prices like that even the tariffs on imported steel, introduced by former President Donald Trump in March 2018, aren’t effective deterrents to marginal ordering for imported steel. Imports of the industrial commodity ticked up just enough in recent months to trigger a protectionist reaction from steel suppliers around the globe. 

Even so, Section 232 tariff negotiations between the US, Japan, and the EU are lifting tariffs on 25% of imported steel and 10% of imported aluminum. The EU also agreed to reciprocate by lifting their own trade tariffs on US imported steel. 

There may be another major kink in the global steel exports to challenge steel-consuming nations. China, the world’s leading exporter of steel, will be taking a backseat in the steel exporting business in 2022. As China works aggressively to reduce pollution in preparation for the Beijing Olympics, steel export production will be cut back severely from 2019 levels where China exported 15% of all steel exported annually. That makes it even more imperative to secure a reliable steel supply chain independent of China, and opening up new supply chains is a wise move for the steel industry in 2022. 

Drying up Demand For Steel? Not in the US 

While CEO Kestenbaum is wary of surplus inventories and “drying up demand” up north, 2022 steel market forecasts further south in the US are quite the opposite following a walloping 94% price surge in 2021. Pent-up demand is expected to revive throughout 2022 and beyond in steel-consuming industries across the board. 

The US housing boom continues after a year when most North American steelmakers are expected to post “record full-year 2021 earnings”. With reported home prices climbing an average of 18.4% last October, the real estate industry is optimistic that the residential housing market is in a sustainable boom, rather than a bubble. 

“2022 will remain a sellers’ housing market and home values are expected to increase by double-digit percentage points.” – Norada Real Estate Investments-Housing Market 2022 Predictions & Forecasts

So much for the “drying up” of demand in the housing construction market, at least here in the US. While that sector is experiencing a genuine surge, more steel-reliant industries use recovery to “pre-pandemic” levels by 2023 as the benchmark to shoot for in 2022. And while CEO Kestenbaum worries about surplus inventories piling up in Canada, the challenges for US automakers are completely the opposite. 

According to Edmunds industry analyst Jessica Caldwell, the automotive industry will need to be ready for: 

• Chip and raw material inventory shortages while simultaneously enjoying skyrocketing consumer demand.
• Depressed sales have built up “deferred demand” as “consumer appetite for new vehicles continues to run high”. 
• 15.2m new cars will be sold in 2022m, up 1.2% from their estimate of 15m new vehicle sales in 2021.
• Production capacity is the big question mark for the automotive sector. In 2022 it’s not “a question of how many new vehicles consumers will buy, but how many vehicles automakers can actually produce.” Automakers in 2021 saw themselves as “at the mercy” of steel and other material suppliers. 

Infrastructure Spending Won’t Have Significant Impact Yet as Steel Prices Trend Down in 2022

A 26% decline after the record-setting highs for steel prices last August 2021 is indeed a “downward trend”.  But according to John Anton, IHS Markit director in a report at SteelOrbis:

“When all is said and done, US steel prices will still be higher than pre-pandemic levels.”

With all the recent PR about the US infrastructure spending bill passing, one might assume that new civil construction projects to repair the crumbling US infrastructure would have an impact on the supply and demand dynamics that will affect steel prices in 2022. 

But according to SteelOrbis analyst John Anton, groundbreaking for major steel-consuming infrastructure projects such as highways, bridges, and tunnels, won’t get underway until 2023, with maximum infrastructure spending occurring in the years 2025-2027. All infrastructure projects under the spending bill are required to use US melted and poured steel, and even re-rollers in the US aren’t permitted to use imported slab. But that still leaves a steel-consuming construction boom for private and commercial construction projects able to use steel from any global source, as covid disrupted construction industry backlogs are dealt with in 2022.

 Sorry CEO Kestenbaum, but we’re just not seeing 2022 as “the falling knife” year for the steel industry in 2022. 

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