Earnings Suffer as U.S. Steel Companies Face Falling Steel Prices


Earnings guidance recently released by U.S. steel companies have a common denominator: the impact of falling steel prices.
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Last year, upon the Trump administration’s implementation of Section 232 steel tariffs, domestic steel prices surged. However, since mid-2018, steel prices have steadily declined.
As such, steel industry optimism, buoyed by rising capacity utilization rates and restarts of idled production — bringing jobs with them — has subsided in the last year.
On the one hand, steel prices seemed to find a floor earlier this year.
In mid-July, the U.S. HRC price dropped down to $530/st before eventually bouncing back up to $590 over the ensuing month, according to MetalMiner IndX data.
However, the price has once again declined. The U.S. HRC price is down 3.39% over the last month, down to $570/st.
Meanwhile, HDG prices have followed a similar trajectory, reaching a bottom in July and steadily recovering after a shorter-term downtrend that began in March. HDG prices, too, are down in the last month, having fallen 2.38% to $832/st.
CRC prices have not fallen like HDG and HRC prices have over the last month. Plate prices, however, are down 7.63% over the last month, down to $738/st.
All of this is to say that falling steel prices are impacting U.S. steel firms’ decisions.
Last week, Steel Dynamics, Inc. reported its third-quarter earnings were expected to be down compared with the previous quarter.
“The reduced earnings are primarily related to lower profitability from the company’s sheet steel operations, as shipments and average steel pricing declined in the quarter, more than offsetting lower scrap costs,” the company said. “Underlying domestic steel demand remains principally intact for the primary steel consuming sectors, with particular strength in construction.
“Third quarter 2019 profitability for the company’s metals recycling platform is also expected to decrease when compared to sequential second quarter results, as a result of declining ferrous and nonferrous commodity prices coupled with steady shipments.”
Similarly, U.S. Steel’s outlook regarding a pair of blast furnaces was impacted by falling prices.
“The positive flat-rolled steel market indicators experienced earlier this summer have softened after a brief recovery in steel selling prices,” the steelmaker said in its third-quarter earnings announcement last week. “The impact of falling steel prices through the second quarter, combined with the impact of a larger than expected drop in scrap prices on market sentiment, is expected to negatively impact Flat-rolled earnings in the second half of the year.
“As a result, our current assessment of the Flat-rolled segment suggests two blast furnaces will remain idled through at least the end of the year.”
Nucor Corporation also noted falling steel prices in its guidance for the third quarter.
“The performance of the steel mills segment in the third quarter of 2019 is expected to decrease compared to the second quarter of 2019 due primarily to lower prices for sheet and plate steel,” the company said. “Although we still see stability in most of the end use markets that we serve, there has been some softening in automotive, agricultural products and power transmission markets.”
Steel companies have also faced pressure from a raw material perspective, given this year’s surge in iron ore prices (on the back of supply-side disruptions in Australia and Brazil). Iron ore prices have put the squeeze on steelmakers’ margins, with prices of the steelmaking material surging to around to five-year highs earlier this year (above $126/mt).
Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.
On the bright side — for steelmakers, that is — iron prices have subsided of late, falling below $100/mt.

One Comment

  • It should be noted. US Steel is not profitable, but the others remain profitable. The profits are down but they are still in the black.


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