Final Thoughts

Written by Michael Cowden

We’ve spilled a lot of ink over labor contract talks between US Steel and the United Steelworkers (USW) union. That issue is no doubt important.

But here are two more that are just as important, if not more so. And you should have both on your radar as you start this week.

First is the impact of historically low water levels on the Mississippi River. And second is a potential scrap export ban in Mexico. Let’s address them in order.

The Perils of a Shallow Mississippi

I was talking with one of my colleagues last week about our Tampa Steel Conference. We were lamenting that a logistics panel in February 2023 would have a hard time beating the “ports chaos” theme that emerged in February 2022.

Recall that in February of this year more than 100 vessels were waiting to unload off the coast of Long Beach, Calif. And Long Beach was just the posterchild for a problem that extended from coast to coast. What were we going to talk about with only ~10 vessels hanging around Long Beach and things basically back to normal?

Just a few hours later, the market was abuzz about how low water levels on the Mississippi River could cripple barge traffic and, by extension, the steel supply chain. One of my colleagues at CRU, Greg Wittbecker, said it was the worst he’s seen since 1988.

It’s early days. And I don’t want to make any sweeping claims about which mills have been impacted and to what extent. That said, one mill told me that they’re still using barge shipment – for now. Another said that some mainstream media reports about barge shipments being suspended for weeks were inaccurate. But the company also noted that it had contingency plans to ensure that customers weren’t impacted.

What we’re seeing on the Mississippi River now is similar to what happened on the Rhine River in Europe over the summer. The Mississippi, like the Rhine, is critical to the movement of goods across an entire continent. My CRU colleague, Greg Wittbecker, outlines the potential impact of low water on the Mississippi on the aluminum industry here. It will be a problem. And as Greg pointed out to me, the aluminum industry does not rely nearly as much on the Mississippi as the steel industry does.

Greg’s article provides a lot of good detail on just why a shallow Mississippi could cause havoc. The problems can be roughly summed up like this:

  • Low water levels mean barges can’t carry as much weight. But low water doesn’t mean lower fixed costs, so you can expect to pay more to move less.
  • Shallow water also means fewer barges can be towed, and that they’ll be towed at slower speeds – resulting in lengthy delays.
  • Steel and aluminum are hardly the only industries that rely on Mississippi barges. It’s harvest time in the Upper Midwest, which means you can expect to see competition for alternative means of transport such as rail and truck. Don’t be surprised if spot rail rates go up.

Will this be a passing problem or a persistent one? Time will tell. But I’d suggest monitoring the situation very closely this week.

Mexico Proposes Scrap Export Ban

Another issue that came to our attention was a proposed ban on Mexican scrap exports. That one was floated by officials in the administration of Mexican president Andrés Manuel López Obrador. It is part of a broader package of export restraints aimed at reducing inflation. (Whether such policies work to tame high prices is a question I won’t get into here.)

We couldn’t find much in writing on the specifics of a scrap export ban. And some of our contacts in Mexico said they hadn’t seen anything specific either. Suffice it to say that, given proximity, any such ban would probably have the biggest impact on mills in Texas and the southern US.

And let’s also keep in mind that, broadly speaking, Mexico imports obsolete grades from the US – scrap used to make basic products such as rebar. It mostly exports busheling. In other words, electric-arc furnace (EAF) mills use the prime scrap to make more demanding sheet products.

Again, the last time we checked, details were sketchy. It wasn’t even clear whether the measures floated in public would be implemented in practice. But it’s another issue you should have on your radar as you start your week.

SMU Events

I mentioned our Tampa Steel Conference earlier in this column. We hope to have a draft agenda out soon. In the meantime, make sure to mark Sunday-Tuesday Feb. 5-7 on your calendar. We’re already taking registrations here.

Also, this might be one of your last chances to register for our Steel 101 training workshop next week in Corpus Christi, Texas. We’ll also be touring Steel Dynamics Inc.’s new EAF sheet mill in nearby Sinton. Don’t miss out! Register here.

And thanks as always, from all of us at SMU, for your business.

By Michael Cowden,

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