US steelmakers’ Q1 earnings calls examine market health

Steel mills in the United States sought to temper growth expectations for 2024 as they delivered near-term outlook reports in their quarter one earnings conference calls.

Cleveland-Cliffs, Steel Dynamics and Nucor have all hosted their Q1 2024 quarterly calls in recent weeks, while US Steel issued its report due to its ongoing acquisition by Japan’s Nippon Steel.

While remaining positive about the future, each company mentioned that the robust performance of the last three years (2021-2023) was extraordinary, calling on investors to adjust their expectations about the future.

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Shipments did rebound from the fourth quarter low during quarter one. On a year-on-year basis, however, shipments declined, as shown in the chart above (scroll right in our image gallery). A better market began to emerge in March, and the mills expected shipments in the second quarter to improve slightly due to stronger end-user demand and seasonal buying patterns.

The US automotive market has been improving from pandemic levels, reporting April sales of 15.7 million at an annualised rate for light vehicles, up 1.2% from March 2024 and flat from April 2023 according to Ward’s Intelligence.

Lourenco Goncalves, Cleveland-Cliffs’ chairman, president and chief executive, said that its automotive business had “carried the day for us once again”. Goncalves, who was vocal in his opposition of US Steel’s acquisition by Nippon Steel during the earnings call, noted that Toyota was currently Cleveland-Cliffs’ biggest automotive customer.

A cautious sign about the near-term outlook for steel demand from the automotive sector is that the April increase was led by a strong performance of small cars and crossover segment as buyers look for more affordable vehicles. Sales also remain subdued in historical terms. Between 2017 and 2019, annual light vehicle sales were trending closer to 17m in the US.

The combination of reshoring and federal programmes, such as the CHIPS Act, IRA and IIJA, should contribute to the healthy outlook for the rest of 2024 and beyond, according to the US mills. Despite weakness on the commercial side, federal spending helped to lift non-residential construction in March. The US Census Bureau reported that non-residential construction spending grew 15.3% in March from a year earlier. Manufacturing (+30.7%), highway/street (+21.6%) and power (+13.6%) construction contributed to this strong growth.

Leon Topalian, the chairman, president and chief executive of Nucor indicated that an unusually wet start to the year had adversely affected demand from regional construction during quarter one. He added that margins for downstream steel products had also “receded from the historically high levels of recent years”.

Shipment volumes are expected to increase during quarter two. Nonetheless, each of the US mills expects lower Q2 average selling prices following strong steel prices at the end of 2023 and the start of 2024.

Steel Dynamics (SDI) was asked about the wider-than-normal price difference between hot rolled and cold rolled coil. The company attributed the larger gap to a tighter market for coated products due to strong demand from the renewable energy sector for new solar power projects.

Despite a generally positive tone of steelmakers’ earnings calls, the US economy is off to a lower-than-expected start for 2024. The US Bureau of Economic Analysis reported preliminary real GDP growth for the first quarter at a 1.6% annualised rate, slowing from a strong 3.4% in the fourth quarter and weaker than the 2.5% predicted by economists.