Falling steel prices reduce US mills’ Q2 profits

Several US steel companies have issued lower profit guidance for the second quarter of 2024, citing downward pressure on prices as a significant factor.

US Steel, Nucor and Steel Dynamics, three of the largest steel mills in the United States, have announced reduced expectations in updates in recent weeks. Their statements came ahead of the reporting of Q2 earnings, which should begin at the end of July.

All three companies highlighted the role of falling steel prices in their reduced profitability. MEPS International’s US hot rolled coil prices show the rate of decline. In quarter two, MEPS’s prices averaged USD755 per short ton, compared with USD900 in quarter one – a decrease of 16%.

In June’s International Steel Review, MEPS forecast that the introduction of new production capacity, seasonal weakness in demand, and increased uncertainty in the run-up to the presidential election may put downward pressure on prices.

However, Nucor’s introduction of a published weekly Consumer Spot Price (CSP) for hot rolled coil, in early April, and the subsequent posting of Cleveland-Cliffs' monthly price, may be driving additional downward price pressure.

Last week Nucor posted a sub-USD700 per short ton CSP for the first time, marking a USD150 drop since its first release on April 8. Similarly, Cleveland-Cliffs released its third monthly price at USD720 per short ton, representing a USD130 drop since April. Pricing momentum heading into the third quarter is not positive for US steel mills, signalling further profit trouble for next quarter.

US steelmakers’ reduced optimism

Weaker pricing was the main theme in each company’s guidance. Here is MEPS’s summary of their statements:

Nucor was the first company to announce lower earnings expectations. While the company announced lower guidance during last quarter’s earnings call, a specific range was not communicated. Nonetheless, its earnings per share are now expected to be more than 33% lower than in quarter one and 60% lower than the second quarter of last year.

In its June statement, Nucor reported: “The largest driver for the expected decrease in earnings in the second quarter of 2024 as compared to the first quarter of 2024 is the decreased earnings of the steel mills segment, due primarily to lower average selling prices, and, to a lesser extent, lower volumes.”

US Steel Corp reported EBITDA on the lower range of its first quarter guidance. The flat rolled segment is expected to post stronger profits in quarter two compared with quarter one due to “favorable impact from successful annual fixed contract negotiations in the first quarter”, it said.

However, the profits from US Steel's minimill, European and tubular segments are expected to be reduced. Lower prices were cited as the main reason for lower profit from the minimill and tubular segment, while lower profit at the European segment is due to weaker demand.

Steel Dynamics Inc (SDI) attributed lower profit guidance to “lower realised pricing” but reiterated that it was experiencing “steady demand”. SDI reported that automotive, non-residential construction and energy sectors are the most stable steel consumers, but added: “Steel buying hesitancy has resulted from a weakening steel scrap price environment.”

SDI estimates that its earnings per share in quarter two will be 27% lower than quarter one and 44% lower than quarter two 2023.

Cleveland-Cliffs, the second largest steel mill (by production) in the US, did not release a statement about its upcoming quarter two earnings. Last quarter, the company reiterated full-year guidance for 2024, which anticipates a “year-over-year steel unit cost reductions of approximately USD30 per net ton, corresponding to an approximate USD500 million Adjusted EBITDA benefit compared to 2023”.

Cleveland-Cliffs continues to be positive about 2024. Its chairman, president and chief executive, Lourenco Goncalves, highlighted in its quarter one earnings release that the company’s “largest end market, the automotive sector, is expected to remain strong”.