According to the CEO of Stelco Holdings Inc., the North American steel market is in for some rough months ahead, with excess supplies, rising inventories, and shrinking demand. Shares of steelmakers fell.
“It’s a falling knife,” Stelco CEO Alan Kestenbaum said in an interview Thursday. “The question is when it will reverse and where we are in the economic cycle.” “I believe it turns at some point, but I’m not sure where it bottoms out.”
The bleak outlook for 2022 comes on the heels of a stellar year for the industry, with the largest U.S. steelmakers expected to post record full-year earnings after domestic steel prices surged as much as 94 percent to an all-time high of nearly $2,000 per short tonne. Kestenbaum was the first steel CEO to publicly warn investors two weeks ago that his company’s steel shipments are suffering as the rapid spread of omicron accelerates absenteeism internally and even more among customers’ work crews.
Following Kestenbaum’s remarks, Stelco shares fell along with those of the major US steelmakers. In Toronto, the Canadian producer fell 6.3 percent, while Nucor Corp., U.S. Steel Corp., Cleveland-Cliffs Inc., and Steel Dynamics Inc. all lost ground for the day. An index of 14 steel companies fell 3.5 percent, on track for the biggest weekly drop since June.
The situation is especially bad when it comes to delivering into the automotive and construction sectors, where inventories are rising and customer demand is dwindling, according to the head of the Hamilton, Ontario-based steelmaker.
“There was a lack of visibility when I spoke two weeks ago.” Now we have a lot more, and it’s pretty clear what’s going on: there’s a lot of oversupplies and a lot of shrinkage in demand right now, and you can see it in the inventory numbers,” he said.
Steel shipments in the United States and Canada have fallen 17 percent since August, while inventories have risen 15 percent in the same time period, according to Metals Service Center Institute data. Steel prices have fallen by more than 26% since reaching an all-time high at the end of August. In addition, Bloomberg Intelligence analysts believe that inflationary pressures and a slowing in demand will make it difficult for steel sector stocks to outperform in 2022.
“I don’t think there will be a choice but for people to acknowledge that we’re in a difficult environment in the coming weeks,” Kestenbaum said.
A well-supplied North American steel market contrasts sharply with other industrial metals that are currently experiencing price increases. Investors are concerned that global supplies of aluminum, nickel, and copper are dwindling, leaving consumers without enough material to manufacture everything from beer cans to washing machines and automobiles. Steel prices are currently around $1,440 per tonne, which is significantly higher than recent historical levels of around $840 per tonne.