The new year is likely to show a modest pick-up in overall North American automotive production that will, in turn, boost demand for key steel product sectors, such as cold-rolled coil, galvanized sheet and special bar quality steel, according to industry analysts and market participants
Potential growth in steel demand will differ across North America, with a slight increase in the United States, stable demand in Canada, and a possible 4% rise in Mexico to support increased car production in line with consumer needs.
In 2024, sales in the US were affected by high inventory levels at the beginning of the year.
To address actual demand, Stellantis and other car manufacturers reduced production, while Nissan encountered difficulties due to financial issues.
The transition to electric vehicles is predicted to slow down, partly due to government policies.
The policies of President-elect Trump might impact the expansion of electric vehicles in the market, influencing overall demand in the auto sector.
US buyer sentiment
A slight increase in US consumer demand is expected in 2025, but concerns about affordability persist.
Higher interest rates and expensive new car prices have led to consumers keeping cars longer, affecting the demand for new vehicles.
In 2024, US domestic auto production outlook remained steady, but automakers faced challenges in producing low-cost vehicles to meet consumer demand.
Dealer confidence in the automotive industry improved slightly post the 2024 elections, but worries about interest rates and the economy linger.
Despite these challenges, advancements in technology, such as electric vehicles and autonomous driving features, are driving innovation in the auto industry.
Consumer preferences are also shifting towards more sustainable and eco-friendly options, leading automakers to invest in cleaner energy solutions.
Steel remains the essential auto material
US domestic auto production significantly affects steel demand, especially in the automotive sector.
Steel plays a crucial role in both internal combustion engine vehicles and electric vehicles in the US market.
A positive forecast for 2025 is set to boost steel prices, as the auto industry continues to influence steel demand.
Buyers are looking to the automotive market to boost demand and prices for steel products in the coming year.
Tailwinds for automotive steel
US production leads North American operations, with estimates suggesting a strong output in 2024.
Despite reductions in Canadian auto production, Mexico’s automotive sector is expected to expand in 2025, supporting steel investments and growth in the nation.
Mexico is investing in expanding steel capacity to support its growing automotive industry, with plans for new factories and increased production capacity.
In addition to Mexico’s expansion, countries like Brazil and Argentina are also ramping up their automotive industries, creating a greater demand for steel in the region.
This growth in the automotive sector is not only beneficial for steel producers, but also for the overall economy of these countries, as the industry provides employment opportunities and stimulates economic development.
The 25% tariff wild card
Mexican President Claudia Sheinbaum has mentioned possible retaliatory actions against potential tariffs from President-elect Trump.
Uncertainty surrounds the impact of tariffs on the Mexican steel market, with increased shipments observed prior to potential tariff implementations.
Mexican market participants foresee changes to address the tariff threat, but specifics on the measures remain uncertain.
The US northern distributor aims to finish production and shipping by January 20. Customers can cancel orders or agree to a 25% tariff if imposed post the deadline. A Mexican industry observer is optimistic for a swift resolution of the tariff issue.
Steel market sources cautiously anticipate Canada avoiding the 25% tariffs threatened by Trump. A steel buyer expects new agreements under Trump’s administration, highlighting concerns about Canadian steel negotiations and Chinese parts entering the US.
Canadian industry sources believe Canada and the US can evade tariffs, but express worries about the potential economic impact if tariffs are enforced. Political opposition in Canada could affect tariff negotiations.
The USMCA signatory nations are likely to resolve the tariff dispute prompted by Trump. Steel prices for various products have fluctuated in recent weeks.
It is crucial for all stakeholders to monitor the situation closely and adapt their strategies accordingly to navigate the uncertain waters of the trade landscape.
Fastmarkets’ Weekly and Monthly Steel Price Assessments
Recent weeks have seen fluctuations in Fastmarkets’ price assessments for steel products.
In May, the MMI remained negative due to tariff announcements and buyer caution. The tariff hikes by the Trump administration are seen as negotiation tools for trade talks.
Analysis of Steel Futures and Tariff Impacts
Steel futures surged following tariff announcements, leading to market changes. Spot prices stayed steady, with buyer caution influencing market trends.
Market Outlook and Trade Agreements
Buyers remain careful as tariff impacts persist. Steel market landscape is expected to be influenced by trade negotiations. Temporary exemptions for certain countries have capped futures prices.
Impact on Import Volumes
Deals with the UK and Mexico are anticipated to ease the domestic market from reduced import volumes. Inventory levels act as a cushion amid trading uncertainties.
Future Price Trends and Market Dynamics
Steelmakers are adjusting prices in response to tariff news, yet long-term price trends are uncertain. Summer months might witness a slowdown in steel activities.
Key Price Movements in Raw Materials and Steel
- Korean steel scrap prices surged by 17.63%.
- Chinese HRC prices declined by 3.07%.
- US shredded scrap steel prices decreased by 10%.
In May, the MMI dropped due to buyer caution and tariff impacts. US steel prices faced downward pressure.
Industry Analysis and Market Insights
US steel prices have started to decline after the gains induced by tariffs earlier in the year, moving sideways with a downward bias. Hot rolled coil prices fell by almost 2% since peaking in March. HRC mill lead times expanded before tariffs were enforced but have since decreased to 5.25 weeks in April. Despite rising production levels in the steel industry, there is oversupply as mills continue to increase output. Some facilities have announced layoffs due to negative market conditions, indicating a weaker market. The market shift from contango to backwardation could result in further spot price declines in the steel market. Manufacturing slowdown and a potential US recession could further affect steel prices, which might continue to drop until returning to pre-tariff levels as in 2018. Chinese steel slab prices saw a slight increase, while other raw material and steel prices saw declines.
Mill Lead Times
Lead times rose slightly before tariffs but have now decreased, suggesting a surplus in the market. CRC, HDG, and plate mill lead times are detailed in MetalMiner’s Monthly Metal Outlook report.
Domestic Output
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Although mills are increasing production levels, domestic demand appears to be softening, potentially leading to price decreases. Some facilities have announced layoffs due to the bearish market conditions.
Market Backwardation
The market shift from contango to backwardation may result in further price declines. While futures may not always accurately predict spot prices, they offer insights into potential market shifts.
Layoffs
Some facilities have announced layoffs due to weak market conditions, indicating an overall market decline. Cleveland-Cliffs recently announced layoffs and reduced capacity at several plants.
Manufacturing Contraction
The ISM Manufacturing PMI reverted to contraction in March and continued to contract in April. The prolonged downturn in the US manufacturing sector has negatively impacted metal demand and prices.
So, How Far Will Steel Prices Fall?
Several factors, including demand levels and a potential economic downturn, will determine the extent of steel price drops. Offshore material may still impact domestic steel prices despite the tariffs. If the market follows a similar pattern as in 2018, steel prices could continue to decline until reaching pre-tariff levels.
Biggest Moves for Raw Material and Steel Prices
- Chinese steel slab prices slightly increased.
- LME primary three-month steel scrap prices fell.
- Chinese coking coal and US shredded scrap prices declined.
- Korean steel scrap prices saw the largest decline.
MetalMiner provides steel should-cost models for transparency in pricing within the industry.