Just over a year ago, MetalMiner commented on the acquisition of most of ArcelorMittal USA’s assets by Cleveland-Cliffs (including potential impacts on steel prices).
At the time, the MetalMiner analyst team suggested, “The deal strengthens the company’s position in the automotive sector. The company likely controls 60%-65% of exposed auto sheet supply (think steel used on the outside of a car).” The analyst team continued, stating, “Biggest loser? Automotive OEMs like General Motors, Ford, Honda and Toyota.”
Fewer suppliers always results in less competition. Always.
Also as predicted by MetalMiner and confirmed by several people familiar with the matter, Cleveland-Cliffs has implemented firmwide standard pricing across all of its assets. As such, any “lower” pricing available previously in the market — through AK Steel, for example — now sells at the ArcelorMittal price (seemingly higher price level). MetalMiner identified that as an obstacle to automakers at the time. The reduction of three behemoth integrated mills to two drastically lowers competition.
At the same time, all of the steel mills have taken a very disciplined approach to adding (or rather, not adding) capacity to the market. The headline capacity utilization rate remains well above 80%. However, the numbers relate to the actual lines in operation, not total U.S. steelmaking capacity.
According to Bloomberg, U.S. steel consumption is estimated to reach 104 million tons this year and 108 million tons in 2022. However, domestic production was forecast to reach 87 million tons, a shortfall of 17 million tons.
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Steel producers enjoying record profits amid strong steel prices
Meanwhile, Nucor expects record earnings in the third quarter of 2021. The chart below shows pre-pandemic quarterly market conditions using Q1 2019 compared with Q1 2021.
In short, two of the largest producers by capacity have both seen record earnings.