Steelmaker CEO Warns North America Market a 'Falling Knife'





(Bloomberg) -- The North American steel market is in for some rough months ahead, with excess supplies, rising inventories and shrinking demand, according to the head of Stelco Holdings Inc. Steelmaker shares fell.

Most Read from Bloomberg

  • Early Omicron Breakthroughs Show mRNA Vaccines' Weakness

  • Why Some Vaccinated People Resist Omicron and Others Don't

  • Thailand to Resume Quarantine-Free Tourism as Covid Eases

  • Biden Expects Russia to 'Move In' on Ukraine; Warns of Sanctions

  • Omicron Is a Bigger Risk for the Young, Medical Data Shows

"It's a falling knife," Stelco Chief Executive Officer Alan Kestenbaum said Thursday in an interview. "The question is when does it go the other way and where are we in the economic cycle? I think it turns at some point, but I don't know where it bottoms out."

The grim view for 2022 follows a stellar year for the industry, with the largest U.S. steelmakers expected to post record full-year earnings after domestic steel prices surged as much as 94% to an all-time high of nearly $2,000 a short ton. Kestenbaum was the first steel CEO to publicly sound the alarm two weeks ago when he warned investors that his company's steel shipments are taking a hit as the rapid spread of omicron accelerates absenteeism internally and even more among customers' work crews.

Shares of Stelco fell alongside the major U.S. steelmakers following Kestenbaum's comments. The Canadian producer fell 6.3% in Toronto, while Nucor Corp., U.S. Steel Corp., Cleveland-Cliffs Inc. and Steel Dynamics Inc. erased gains for the day. An index of 14 steel companies dropped 3.5% and is on pace for the biggest weekly decline since June.

The situation is especially negative delivering into the automotive and construction sectors, with those industries reporting inventories are rising and customer demand is drying up, the head of the Hamilton, Ontario-based steelmaker said.

"When I spoke two weeks ago, there was a lack of visibility. Now we have vastly more and it's pretty clear what's happening: significant oversupply and significant shrinkage of demand right now and you're seeing it in the inventory numbers," he said

Steel shipments in the U.S. and Canada have plunged 17% since August and inventories have climbed 15% in the same period, according to data from the Metals Service Center Institute. Benchmark steel prices are down more than 26% since touching an all-time high at the end of August. And analysts at Bloomberg Intelligence said inflationary pressures and demand slowdown could make it harder for steel sector stocks to outperform in 2022.

"I don't think there will be a choice but for people to acknowledge in the next couple weeks we're in a difficult environment," Kestenbaum said.

A well-supplied North American steel market sits in stark contrast to other industrial metals that are currently surging in price. Investors are worried supplies of aluminum, nickel and copper are dwindling across the globe, leaving consumers without material necessary to make enough of everything from beer cans to washing machines and automobiles. The price of steel, currently about $1,440 a ton, is still well above recent historical levels of about $840 a ton.

(Updates with closing share prices in fourth paragraph and base metals performance in final paragraph)

Most Read from Bloomberg Businessweek

  • Wall Street Traders Muscle Into the Middle of Crypto

  • Microsoft Makes a $69 Billion Down Payment on the Metaverse

  • One Year Into His Term, Biden Finds Himself Boxed In on China

  • Work From Home Is Becoming a Permanent Part of How Jobs Are Done

  • One Year Into His Presidency, Biden Hits a Wall. Can He Recover?

©2022 Bloomberg L.P.

COMMENTS

More Related News

Lagarde Says Crypto Is
Lagarde Says Crypto Is 'Worth Nothing' and Should Be Regulated

(Bloomberg) -- European Central Bank President Christine Lagarde said crypto-currencies are "based on nothing" and should be regulated to steer people away...

Singapore Still Rules China Futures Market as Hong Kong Edges In
Singapore Still Rules China Futures Market as Hong Kong Edges In

(Bloomberg) -- Six months after Hong Kong introduced equity index futures to make it easier for international investors to bet on Chinese stocks, Singapore...

BitMEX Founder Hayes Avoids Prison on Bank Secrecy Charge
BitMEX Founder Hayes Avoids Prison on Bank Secrecy Charge
  • US
  • 2022-05-20 23:22:41Z

(Bloomberg) -- BitMEX co-founder Arthur Hayes was spared from prison despite admitting he failed to guard against money laundering at the pioneering...

Retailer Rout Erased $500 Billion, Stirs Worry of More Ahead
Retailer Rout Erased $500 Billion, Stirs Worry of More Ahead

(Bloomberg) -- The wild swings in consumer stocks this week that erased about $500 billion in market value are far from over with earnings reports from well-...

'It's a Buyers Strike': Investors Weigh In on Bear Market Plunge

(Bloomberg) -- From Apple Inc. to Tesla Inc., some of the biggest names in the S&P 500 Index are fueling a relentless selloff that briefly pushed the broad...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy