GM Strike Could be a Boon to Steel Buyers
Nothing entertains me more than receiving an oddball inbound phone call, email or, in this case, text message when something hits metals markets.
A great inbound came in yesterday regarding the nationwide strike at General Motors, which could have an impact on steel prices.
The question, “Do you think the GM strike will pull the market down further?” resulted in an immediate reply, “I don’t follow the stock market as closely as I do commodity markets.”
To which this large steel buyer replied, “I’m talking steel market, not stock market.”
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Now, that’s a very good question!
Let’s do a quick calculation to assess impact. I feel like I’m interviewing for a big consulting firm and they have given me my first case study — “how would you calculate the GM strike’s impact on steel demand?”
So, here goes:
- GM produced 8.4 million cars in 2018.
- According to the God of Google, 2,138 pounds of steel (on average) are in every car/truck produced by GM.
- So, 8.4 million cars annually multiplied by 2,138 pounds of steel — we converted the 2,138 to 1.069 short tons — equals 8.98 million short tons of steel.
- The average automotive OEM operates 365 days a year, less a mandatory two-week shutdown — so, 365 minus 14 equals 351 operating days.
- That means GM’s strike would hinder steel usage by 25,582.9 tons (on average) per day.
Given that the U.S. market consumes about 110 million tons annually, and GM’s share represents about 8% of domestic steel production, it would take a 39-day strike to lower demand by 1 million tons, or 1%.
Does that mean the GM strike could cause steel prices to plummet or fall further?
Not likely.
However, coming into annual contract negotiation season, buying organizations should certainly take heed of underlying steel price momentum.
Fundamentals do not drive metal prices, as we have long noted, but they may provide some leverage to other large buying organizations.
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Of course, if you disagree with this analysis, leave a comment!
2 Comments
Take your calculations one step further. Divide the impact by the number of steel suppliers. The effect is further reduced.
Nice piece Lisa.