November 2024 Volume 6

2024: CHALLENGING YEAR FOR SBQ SUPPLIERS Specialty bar producers and distributors forecast only modest improvement in 2025 By Tim Triplett MATERIALS

Manufacturing: Slumping Producers and distributors of SBQ described a general slowdown in most industrial markets in 2024. Indeed, the Institute for Supply Management’s PMI, at 47.2% in September, has shown contraction in the manufacturing sector for 22 of the last 23 months. “The market is in a slump right now, there’s no doubt about it. It has been tough sledding all year,” said one midwestern distributor. Even automotive is starting to lose some steam, he said. Coupled with the political uncertainty of an election year, “people are leaving their guns in their holsters.” The next time they take a shot at inven tory could be after the first of the year when a new administration is in place. Automotive: Sputtering As the biggest single market for SBQ, automotive garners the most intense scrutiny. Steel suppliers keep a close watch on trends in consumer preferences and progress toward hybrid and fully electric vehicles for clues on what type of demand will trickle down to steel and forged parts. Analysts at Cox Automotive report that the auto market in the U.S. has performed below expectations this year, showing less than a 1% improvement from last year. New vehicle sales in the U.S. are projected to top out at 15.7 million units in 2024. Cox Senior Economist Charlie Chesbrough said he expects light vehicle sales to continue to show mild improvement. “Recent interest rate cuts will have a positive impact on borrowing costs, and sales should see support as uncertainty around the election and monetary policy fades away by year’s end.” One steel producer reported steady volumes in automotive orders through the first three quarters, but signs of slowing heading into 2025. “The fourth quarter is always slower than the other three, so that’s normal. But we are seeing more than the normal pullback in automotive now,” he said. The slowdown likely reflects carmakers’ cuts to year-end production to clear out high vehicle inventories. Suppliers to automotive tend to downplay the potential impact of vehicle electrification and production of fewer internal combustion engines. Hybrid cars and trucks with both gasoline and electric power trains seem to be the most favored by consumers, at least so far, which is good news for parts suppliers.

S uppliers of special-bar-quality steel (SBQ) to the forging industry report uneven demand and disappointing results for the first three quarters of 2024. How quickly the market will improve is anyone’s guess, but most competitors feel the bottom is near and see some upside ahead in 2025. SBQ is a relatively small market, representing roughly 6 million of the 90 million tons of annual steel shipments in the United States. Sales to automotive account for about half that volume. “Steel has faced some volume growth challenges, and pricing and profitability challenges. Pricing has lost momentum and come down,” said Philip Gibbs, metals equity research analyst for KeyBanc Capital Markets in Cleveland. Automotive consumption of SBQ has been stable this year, but the non-auto component of the market declined decisively, resulting in at least a 5% dip in overall SBQ demand in 2024, he estimated. While contract prices for SBQ were fairly flat in 2024, spot prices weakened. “Since the tail end of 2023 we have seen some erosion in base prices and also in scrap. So the all-in transactional price rela tive to the average price last year is down nearly 15%,” Gibbs said. That downtrend could continue, he said, pointing to ongoing contract negotiations between buyers and suppliers. “I’m hearing that contracted base prices will be down for ’25. I don’t know how much, but they should be a bit softer based on what we’ve seen on the transactional side of the market this year.”

FIA MAGAZINE | NOVEMBER 2024 23