November 10, 2022

Steel industry professionals have lamented that the market is “oversupplied,” and a new contract between the United Steelworkers (USW) and US Steel might add fuel to the fire.  The USW has averted a possible strike, as the union and US Steel tentatively agreed to a new four-year contract earlier this week. The new contract includes a wage increase, a $4,000 bonus, and higher pension and 401K contributions. The agreement will be similar to the one the USW reached with Cleveland-Cliffs in October, according to an unnamed source interviewed by Bloomberg. Unnamed sources recently told Argus that a potential strike by the United Steelworkers could be “the only action that could turn around the market, save increased production cuts by steelmakers.” (Source: Bloomberg, Argus)

CME HRC prices have dropped in recent months, mainly due to the aforementioned “oversupplied” conditions. Prompt month (November) CME HRC futures are down nearly 58% from the highs of mid-March, as the last traded was $658/st (7:00 AM CST). This could be a good time for steel end-users to hedge future needs into 2023 by buying HRC swaps. Using swaps converts a variable cost into a fixed cost, thereby ‘locking in’ a price for the hedged steel. Since HRC swaps are thinly traded, we suggest using limit orders to establish a specific steel price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (11/10/2022)

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