Optimism Fades for U.S. Steelmakers

(Bloomberg) -- Just when it looked like U.S. steelmakers could breathe a sustained sigh of relief, the long-embattled industry is once again tensing up.

American steel mills announced earlier this summer they would be raising prices. But according to producers, distributors and analysts who gathered this week at one of the year's largest industry conferences, steel buyers have been slow to accept the increases, underscoring fading optimism more than a year after the introduction of tariffs meant to bolster the industry.

The U.S. market is “challenging” in the short term with demand muted, said the head of a service center that processes steel products for domestic end users in the lower-48 states.

“It's been a little slow to accept the price increases,” Majestic Steel USA's Todd Leebow said in an interview at the conference in Atlanta. “We won't see prices get to where they bottomed in the summer, but there's a ceiling in terms of where these prices will get to.”

The industry has been on a wild ride. President Donald Trump announced in March 2018 a protective 25% tariff on steel imports, which helped generate some of the highest steel company profits last year since the 2008 financial crisis. The optimism encouraged companies to expand capacity by investing in new mills or updating aging assets.

Then fears of oversupply, wavering economic growth and intensifying global trade friction combined to suck some of the optimism out of the industry, weighing on shares and forcing some companies to retrench. Domestic hot-rolled coil steel prices, a benchmark indicator for in the U.S., are near the lowest since 2016 and the S&P Supercomposite Steel Index is headed for the fifth monthly decline in six.

“Mills are painting a pretty nice picture of demand and of improvements in the industry, but I think the reality is they're shelling out a lot of money for these improvements, and our view is that over the next several years you're going to have sustained lower prices,” Bank of America analyst Timna Tanners said in an interview. “It doesn't bode well for their profit picture.”

Some participants at the conference blamed the U.S. president's public negotiating style for some of the issues facing the industry.

“We need more stability and certainty in our public policy, and that's the one thing all companies like, whether you're a 21st Century steelmaker or you're in another industry,” Philip Bell, the president of the Steel Manufacturers Association, said in an interview.

To be sure, some analysts believe demand isn't going to shrink in the short term. CRU analyst Josh Spoores said in a presentation that demand for steel sheet has slowed structurally and seasonal demand will weaken as new orders ease over the next few months. But Spoores also said a low may be in sight for sheet consumption in 2020, setting the stage for rising demand and inventory rebuilds in 2020.

During a panel discussion at the conference, U.S.-based executives didn't conceal their lack of enthusiasm. One case in point was Steel Dynamics Inc. Chief Executive Officer Mark Millett. While saying he expected demand would still grow at about 1% to 2%, he added sardonically, “We're not going to do jumping jacks down the aisle.”

--With assistance from Aoyon Ashraf.

To contact the reporter on this story: Joe Deaux in New York at jdeaux@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Steven Frank, Joe Richter

©2019 Bloomberg L.P.

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