February 2024 Volume 6

MATERIALS

SBQ Off to an Encouraging Start in 2024 By Tim Triplett

Roughly half of special bar quality steel production in the U.S. is consumed by the automotive industry every year, so the six-week strike by autoworkers last fall was cause for concern for the steel mills and forgers who count on healthy auto production. As of this writing, three months after the union and carmakers reached a new labor agreement, it appears the impact of the Detroit work stoppage will be minimal. In fact, steel executives report, 2024 has gotten off to a decent start for SBQ. Most industry forecasters are projecting a modest but positive increase in new vehicle sales in the U.S. this year, up about 2% to 15.9 million light cars and trucks. Analysts say 2024 could be the first “normal” year for auto production since the pandemic and microchip shortage (see sidebar). But as of mid-January, the market was still trying to find its footing following a seasonally slow December, said one midwestern bar distributor. “Everyone was expecting a boomerang effect from the auto strike, but it is still too early to determine what that will be. It may take until the end of the first quarter to see a rebound in auto-related orders.” Looking ahead in 2024, he said, customers are forecasting demand similar to 2023, up or down 5-10%. Given the tenuous state of the economy and the acrimony of an election Automotive Market Looks for a ‘More Normal’ Year For the U.S. auto market, the word that will likely sum up 2024 is “normalcy,” according to Cox Automotive’s Forecast: 2024.

year, forward visibility is limited. “Uncertainty causes hesitation,” he added, which can mask real demand. One executive from a large mill noted that contract negotiations last fall took a bit longer than usual because of all the market uncertainty. In the end, most customers said they believe 2024 will shape up much like 2023. “No one is forecasting a big increase,” he said. “Business will still be good, but not like it was a couple years ago.” Order books were described as “a bit soft” in the fourth quarter as customers destocked inventories to meet year-end financial goals, but January was a different story for some competitors. “We are very encouraged by our order entry,” said one mill exec. “Our February has shored up nicely on the volume levels, and March is filling in well, so we are really encouraged.” The auto strike did not hurt small-diameter SBQ demand to the degree many feared, he added. “Suppliers were so far behind that, even though some of the plants were shut down, it gave them the opportunity to start catching up and building some inventory. I was expecting the phone call to stop shipping, but we never got to that point.”

key themes: slow growth (which beats a recession); plentiful vehicle supply (which will put downward pressure on prices); and “a year of more” for electric vehicles (see graphic). Cox Automotive expects the economy in 2024 to experience weak growth, but not a recession. High interest rates and declining inflation will likely continue, limiting consumer spending. Job and income growth may slow. The labor market, which significantly contributes to vehicle sales in the U.S. market, is expected to weaken. However, unemployment levels will remain low enough to support a healthy auto industry. Cox Automotive expects new-vehicle inventory to rise, incentives to improve and discounting to increase this year. New inventory is expected to reach pre-pandemic norms in 2024, with almost 3 million units available, or three times the amount during

the chip shortage. With higher supply and lower prices, Cox expects new-vehicle sales in 2024 to exceed 2023, though the increase will be less than 2% with sales hitting 15.7 million units. Demand for electric vehicles (EVs) is increasing, though expectations for EV growth in the U.S. market have shifted from “rosy to reality” as customer acceptance of EVs is still a drag on the market. With more electric vehicle models available, more incentives, more discounts, more advertising, and greater sales efforts, Cox Automotive expects EV sales in the U.S. to exceed the 1-million-unit record set in 2023. Furthermore, electric vehicles, plug in hybrids, and hybrids combined are likely to account for almost 24% of the market, with electric vehicles alone accounting for more than 10% of total sales.

“A decade from now, when we look back at the years immediately following the global pandemic of 2020, we’ll be awed by the dramatic swings and unprecedented circumstances the economy and auto market endured,” said Cox Automotive Chief Economist Jonathan Smoke. “To name a few, we saw historic appreciation in vehicle values, unimagined drops in supply, and interest rates moving from all time lows to 23-year highs at an unforgiving pace. The past four years have been chaotic, even by auto industry standards, and have shifted many normal seasonal patterns out of whack, which adds to the difficulty of forecasting what comes next.” For 2024, the Cox Automotive Economic and Industry Insights team sees the U.S. auto market being steered by a few

FIA MAGAZINE | FEBRUARY 2024 42