The United States' Section 232 tariffs will likely be replaced by quotas before ratification of the US-Mexico-Canada (USMCA) agreement, Steel Dynamics Inc (SDI) president and chief executive officer Mark D. Millett said.
“We anticipate reciprocal [Section] 232 tariffs between the US, Canada and Mexico will be replaced by alternative, effective quota-based programs among the USMCA countries prior to ratification of the agreement later this year,” he told analysts during the company’s first-quarter earnings call on Monday April 22.
SDI executives previously indicated that US quotas could be a better way to control steel imports amid an overcapacity crisis that continues to weigh on the global steel industry.
“Furthermore, the actions taken by the US federal government have developed a healthy domestic steel environment and should provide sustainable, long-term support for the US manufacturing base,” Millett said, praising the President Donald Trump administration’s trade policy. “We believe North American steel consumption will continue to see a steady increase.”
New flat-rolled mill
Should quotas replace the Trump administration’s Section 232 measures, ongoing healthy demand will be key to the success of SDI’s nearly $2-billion flat-rolled steel mill, Millett said. The mill, the location of which is still being decided, is slated to come online during the second half of 2021.
“We are still actively pursuing sites in both Texas and Louisiana,” he added.
"We plan for the new steel mill to have product capabilities beyond existing [electric-arc furnace] flat-roll steel producers today, competing even more effectively with the integrated steel model and foreign competition," Millett said in a quarterly earnings release.
“We will have a significant geographic, freight and lead time advantage, and we have target markets,” Millett said of the new mill, noting during the call that “the new mill will have, in fact, three targeted regional markets, representing over 27-28 million tons of flat-rolled steel consumption.”
These include the region covering the four states of Texas, Oklahoma, Louisiana and Arkansas, which Millett sees consuming 8 million tons of the projected 28-million-ton total.
An additional 4 million tons will be consumed within the West Coast market, he said, and the remaining 16 million tons will be consumed south of the border, within the northern and mid-central Mexican markets.
“Based on their growing manufacturing base, we believe Mexican demand will continue to outpace supply, making this an even more attractive market in the coming years,” Millett said.
Pricing, market outlook
"A downward trend in flat-roll steel prices began in the second half of 2018 and continued through mid-first quarter 2019, reaching an inflection point in February 2019,” Millett said in the earnings release.
Fastmarkets’ daily US Midwest hot-rolled coil index stood at $33.96 per hundredweight on Thursday, down by 25.9% from the nearly 10-year high of $45.84 per cwt reached in early July of last year, with sources continuing to express mixed sentiment on the direction of the market.
“As prices softened, buyers remained on the sideline. Yet teams were able to increase shipments to offset some of the margin compression,” Millett said during the earnings call. “The good news is that underlying demand remained intact, flat-rolled pricing increased and order input rates returned, thereby regaining healthy lead times.”
While the company's average steel selling prices declined by $38 sequentially to $902 per ton during the quarter, flat-rolled shipments from the company’s Butler, Indiana, and Columbus, Mississippi, divisions increased by 2.2% to 1,526,851 tons from 1,493,894 tons in the same comparison.
Flat-rolled shipments from SDI’s Techs, Heartland and USS divisions increased by 25.9% to 330,775 tons in the first quarter from the 262,642 tons in the fourth quarter of 2018.
“The continued stabilization and improvement in flat-roll steel prices are having a positive impact, resulting in increased flat-roll order activity and solid order backlogs,” Millett said. “We are seeing continued strength in the automotive, energy and industrial sectors, and - as evidenced by strong steel fabrication backlogs - strength in non-residential construction."
Furthermore, Millett expects improving weather to provide an additional tailwind.
“Our order backlog remains strong heading into the summer construction season, and it’s slightly higher than this time last year,” he added.