Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Leaders from US Steel, Cleveland-Cliffs, Steel Dynamics (SDI), and Nucor focused on the fundamentals, recovery, and opportunities for the US steel industry during a recent Town Hall meeting hosted by the Association for Iron and Steel Technology (AIST). 


The panelists acknowledged the severe effects of the COVID-19 pandemic on the steel industry but remained optimistic about its future, committing to move forward and succeed in the “new normal.” 


Focus on New Technologies

Dan Needham, vice president and general manager at Nucor, stated that the pandemic has provided the US steel industry with an opportunity to emerge stronger and plan for the next 50 years. Mark Millett, president and chief executive officer at SDI, highlighted the reality of cyclical volatility in the steel industry, whether it was the recent pandemic or the surge in imports in 2015. 


The panelists embraced the idea of using new skills to strengthen the steel industry as it shifts its focus on using technology to leverage growth opportunities and develop human capital. 


Laurenco Goncalves, chairman, president, and chief executive officer at Cleveland-Cliffs, underscored the importance of the industry in the American economy while warning of the long-term risks from China on the industry’s global autonomy through its excess capacity.


David Stickler, chief executive officer at Big River Steel, also pointed out that China cannot stop producing both due to its philosophy and the need to provide for its own large population. 


Stickler further projected a future where the US could end up with four flat-rolled steel producers. Under this scenario, he listed Cliffs as the traditional, integrated entity, SDI leading the EAF model, and US Steel and Big River leading with hybrid models. “The diversity will support a healthy market for customers, suppliers, and investors,” he said. 


Big River’s success, according to Stickler, is based on two pillars—environmental sustainability and technology (artificial intelligence, machine automation, and big data analysis). The steelmaker is now focusing on renewable energy generation and plans to embrace other emerging technologies like using hydrogen to make steel. 


Commenting on the EU’s goal to become net zero emissions by 2050, all the leaders said that the timeline is too distant with the US ahead environmentally and looking at strong improvements within five years.


According to Goncalves, the US has a strong natural advantage because of affordable natural gas that can be used to produce electricity without subsidies that are still required for wind and electric power. He highlighted Cliffs’ HBI plant in Ohio and its environmental benefits to domestic raw materials sourcing, noting that the US is the only country with BOFs that operate with 100pc pellets, in line with environmental low carbon goals. 


Challenges posed by the pandemic

The COVID-19 pandemic challenged each company to focus on its workforce by implementing safety procedures and developing new taskforces that allowed internal self-leadership with unions stepping up as great partners on safety, the panelists observed at the Town Hall. 


Nucor, SDI, and Big River Steel did not lay off workers and kept mills at high operating capacities. The steelmakers noted that given social distancing measures, hygiene practices, contact tracing, and all other procedures implemented by them, employees were safer at work than in other environments. 


Goncalves discussed how the automobile industry’s shutdown that began in March 2020, had Cliffs begin to prepare for the worst downtrend; yet by Q3 2020 the economy has demonstrated a remarkable turnaround. “The reduction in public transportation and an uncertain future of app-based transportation has supported car purchases while stay at home orders increased demand for appliances and other steel goods,” Goncalves noted.


Burritt observed that US Steel had to adjust production quickly in Q2 2020 with blast furnaces being idled but he agreed that Q3 2020 has demonstrated a dramatic rebound. Reinforced by the need for nimbleness, US Steel is focusing on strategic markets through investments in mini-mills. Burritt underlined how the company achieved the best of both the traditional and EAF models through its investment in Big River Steel. 


EAFs and environmental sustainability

Electric arc furnaces (EAFs) will grow as a proportion of US steel production from the present 70pc to around 85pc due to a highly flexible design, lower costs, and growing product diversity, the panelists said at the Town Hall. 


They added that the adoption of new technology will allow more flat-rolled steel produced by BOFs to be replaced by mini-mills. Stickler highlighted that Big River’s new Texas mill will produce exposed automotive and high strength steel grades via EAF for the first time due to advanced technology. “Presently, the composition is approximately 70pc scrap, 20pc pig iron and 10pc other raw materials but the goal is to move to 90pc scrap, which will also support lowering steelmaking’s carbon footprint,” Stickler.


“The environmental sustainability of US steelmaking should be marketed more heavily,” Goncalves said, adding that the opportunity to leverage US raw materials in the new model, reduced the reliance on imported pig iron with long distance freight and carbon emitting production processes. 



Regarding tariffs, Stickler noted the need to focus on providing top products and continuous innovation to reduce imports as Section 232 is not a long-term solution. Leaders from US Steel and Nucor spoke of the positive impact of Section 232 in promoting fair steel trade while Millett suggested a higher use of a quota system, which he considers more effective. Section 232, Section 301, and quotas are preferred over trade cases given the time the latter take for resolution under due process requirements. 


Goncalves recommended a pollution-based tariff system to incorporate the environmental costs being imported into the country along with the goods. He noted that a stronger sustainability mindset among investors and end consumers will start allocating capital according to stewardship commitments. He added, “The environmental assessment by investors and buyers should take care of China against US-sourced steel but we need to educate people on the facts.”


He also highlighted the need to monitor the US Mexico Canada Agreement (USMCA) as friendly countries can sometimes be the biggest violators. He observed the need to continue moving the relationships with trading partners like Mexico, Canada, South Korea, and Japan with a focus on mutual fair trade. 


Mexico has huge economic advantages which is attracting Asian-owned mills to that border while Canada was identified as providing steel subsidies. Burritt said, “The USMCA is definitely better but not as good as it needs to be.” He supported strong non-delayed enforcement. 


With regards to China, despite claims of low steel exports, the Asian country’s excess capacity will affect the domestic economy either through circumvention efforts or via finished steel goods, which are not being tightly regulated. Goncalves spoke of China’s increased market share in Asia during the pandemic as well as its Belt and Road initiative that is placing many countries in jeopardy of losing independence due to high financing costs that are secured by domestic collateral.


Room for imports

Burritt highlighted that while the US has the capacity to become self-sufficient over time, fairly traded imports are welcome. “In a high demand environment, the US requires 130mn mt of steel for consumption with 90-95mn mt available within the US border,” Burritt said adding that due to a 65pc capacity utilization in the industry at present, imports were not necessary for now.


Goncalves also articulated that in 5-6 years Cliffs is considering selling steel in a per part manner contrary to the present per ton formula used worldwide since, for example, it is more costly to produce plate than flat-rolled steel.

Leave a Reply

Your email address will not be published.