Wary Steelmakers Leave ‘Giant Hole’ in Biden’s U.S. Factory Push


U.S. steelmakers’ reluctance to resume full production after pandemic shutdowns threaten to undercut President Joe Biden’s push to support domestic industries.

Producers that shut furnaces in response to falling demand during the early stages of the coronavirus are still operating plants at well below pre-pandemic levels, even as recovering economies and tight supplies drive prices higher. The benchmark price for American steel is at an all-time high.

Companies including Cleveland-Cliffs Inc. and U.S. Steel Corp. have kept blast furnaces idled on expectations that prices are likely to recede at some point, which would squeeze margins and potentially force expensive shutdowns again at those furnaces. While that tack bodes well for steelmaker profits, customers in industries from automobiles to appliances to machinery say they can’t get enough metal, and may need turn to overseas suppliers.

“That’s just blowing a giant hole in the idea of reshoring, where if you want to support U.S. manufacturing you need to have competitively priced inputs,” Josh Spoores, the principal steel analyst at CRU Group, said in a telephone interview. “It’s primarily steel and energy, and if either of those is out of whack and it’s not competitive where it is elsewhere, you’ll see manufacturing move to lower-cost areas.”

American plants are running at about 75% of their maximum potential, well off a recent peak of 83% in 2019 when they were receiving the full benefit of tariffs that former President Donald Trump implemented to protect the industry from imports.

‘Tempted by Stupidity’

Lourenco Goncalves, the chief executive officer of Cleveland-Cliffs, has told investors that he will focus on a quality over volume approach. The Ohio-based company bought AK Steel Holdings Corp. and ArcelorMittal USA assets in 2020.

“Under my watch, Cliffs had never been and will never be tempted by the stupidity of volume for volume’s sake,” Goncalves said on a call with analysts in October. “We will continue to manage our business in the most quality-focused and cost-efficient ways, always reaching for real value and return on invested capital.”

Import prices are already high because of increasing global demand for steel and because of the 25% steel tariffs Trump imposed almost three years ago. But the economics are beginning to make sense: the average tariff and transportation-adjusted import price is currently about $900 a ton, about 25% less than what it costs to buy from U.S. producers, according to Bloomberg Intelligence analyst Andrew Cosgrove.

A move to imports would run counter to Trump’s intent to protect domestic producers and Biden’s hope to bring back American jobs and factories. But customers may not be inclined to wait for additional or new capacity to come on line.

“The demand is not pre-Covid levels, but it’s just more than what we have in production today,” said Dan DeMare, a regional sales manager for Heidtman Steel, a service-center customer of U.S. Steel. “The steelmakers are going to make a load of money, but the stress it puts on the market is insane.”

©2021 Bloomberg L.P.

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