February 2024 Volume 6

MAINTENANCE

MATERIALS

Added another mill exec from the Midwest: “The headline is no headline. It has been quiet. Customers are predicting that ‘24 looks about the same as ’23, not great, not bad,” he said. “Shipments started out fairly robust in early January, but we could tell there was some foot-dragging as people worked off year-end inventory.” Some of that drag may be attributable to buyers adding just-in case bar inventory last year in response to Republic Steel’s August announcement that it was idling its Ohio and New York mills. “Some customers may have loaded up with material in anticipation of Republic leaving, but Republic’s troubles were widely known. There was no panic buying. The change had mostly worked its way into the market already. Republic’s exit did not create much of a ripple,” he noted. Philip Gibbs, managing director and senior equity analyst for metals and aerospace with KeyBanc Capital Markets, said fourth-quarter 2023 saw fairly normal seasonality. Offsetting any softness in SBQ demand due to the auto strike was some pre-buying as automakers hedged against a prolonged labor stoppage and increases in scrap surcharges. January was expected to see a sideways to downward movement in scrap prices. “Automakers may have bought steel over their needs in Q2 and Q3 last year anticipating difficult labor negotiations, then bought a bit under in Q4 because of the strike, but it should not be a headwind in ’24,” Gibbs said. While automotive is trending upward in 2024, the outlook for other industrial markets such as energy and machinery appears

flat to down, Gibbs said, based on such leading indicators as ISM’s Purchasing Managers Index and Baker Hughes’ rig counts data. The PMI, at 47.4% in its latest reading in December, has registered contraction in the U.S. economy for the past 14 months. Rig counts in the U.S. and Canada are down 20% since last January. Not good news for SBQ. “If rig counts persist at this level for a while, we will need to see a recovery in the second half for energy to show growth. I’m not calling for a big downturn, but I don’t see how industrial can be all that great this year,” Gibbs said. Don’t assume Republic is a nonfactor in the SBQ market just because the company shuttered its U.S. mills, Gibbs added. It’s parent, Grupo Simec, may well be servicing the North American automotive market more efficiently and competitively from its Mexican production facilities. Spot base prices for SBQ skyrocketed during the post-pandemic surge two years ago when lead times extended to 6-12 months. Today, with lead times in the more typical 4-7 week range, availability is not a big concern. Spot prices declined by more than $50 per ton in last year’s second half, given shorter lead times. Contract prices for SBQ, which rose by more than $50 per ton in 2023, may head in the other direction in 2024, Gibbs said. “There will be some further giveback in contractual pricing in 2024, we believe, coming off the highs of 2022-23.” Mill executives confirmed the downward pressure on SBQ prices. “The last two years we had record price increases in the market,

(Graphic courtesy of Cox Automotive)

FIA MAGAZINE | FEBRUARY 2024 43