UAW Strike Hits Demand for Steel

The spot-market price for benchmark coiled sheet steel has fallen 40% since April. Steel buyers have cut back purchases amid growing concerns about weakness in major steel-consuming sectors, particularly manufacturing, commercial construction and, lately, automotive.

Demand for steel from the auto industry had been a bright spot for the steel industry in the past year. Vehicle-production volumes rebounded from supply-chain bottlenecks during the Covid-19 pandemic. Steelmakers have been investing in new and existing mills in anticipation of rising demand for steel from federal infrastructure projects, electric-vehicle battery plants and increased auto production.

But steel purchases by automotive-related users began slowing during the summer as a strike by the United Auto Workers union appeared more likely.

“The air just got sucked out of the steel market," said Jeremy Flack, chief executive of Flack Global Metals, a Chicago-based steel distributor. “There’s fear in the market and nobody wants to buy anything."

Steelmakers Nucor and Steel Dynamics in September forecast third-quarter profit would decline from the same period last year and from the second quarter because of lower steel prices. United States Steel in September said it would idle a blast furnace at its Granite City, Ill., mill and reallocate the steel produced there to other mills where steel production has dipped because of the auto workers’ strike.

The spot market price for coiled sheet steel slipped about 3% since the strike started Sept. 15 to $700 a ton, according to S&P Global Commodity Insights.

Cleveland-Cliffs on Sept. 27 tried to jolt the market out of its doldrums by announcing it would charge a minimum of $750 a ton for all varieties of its steel. The Cleveland-based steelmaker is typically the industry’s most aggressive at raising prices. Other steel companies often follow with their own increases.

Industry analysts saw Cleveland-Cliffs’ move as an attempt to halt further price erosion by betting that steel customers are ready to replenish depleted inventories—and will pay more.

Using price increases to cure a slumping market can be risky if customers simply refuse to pay more or refrain from buying steel. The spot-market steel price last November sank to a low of $620 a ton before rallying into early 2023, according to S&P.

The slump has taken a toll on steel company stocks by driving down stocks. Cleveland-Cliffs made an unsolicited offer of more than $7 billion for U.S. Steel in July. The Pittsburgh-based steelmaker’s stock had fallen 27% in the months before Cleveland-Cliffs went public in August with a cash-and-stock offer that it said provided U.S. Steel investors with a significant premium for their shares.

U.S. Steel has said it is considering several offers of all or parts of the company.

A walkout by hourly workers at selected plants operated by General Motors, Ford Motor and Stellantis, which includes Chrysler and Jeep, began after negotiations failed to produce a new contract for 146,000 hourly workers represented by the UAW. Without a contract settlement, the UAW on Friday expanded the strike to additional plants. The plants struck by the union have about 25,000 employees, or 17% of the union workforce.

Several weeks’ worth of vehicle inventory on dealers’ lots or in transit when production stopped is expected to leave enough vehicles on hand to sell in the short term.

S&P estimates the strike so far has knocked out production of 6,030 vehicles a day that consumed about 5,982 tons of steel.

Chris Zuzick, vice president of Waukesha Metal Products, a Wisconsin-based supplier of brackets for vehicle suspensions and other metal parts, said his company has throttled back its longer-term purchases of steel since the strike.

“Right now we’re really watching our inventories and not making a lot of commitments for raw materials," he said.

Zuzick said for now his company has continued to produce parts for vehicle models affected by the strike, based on his experience with General Motors in 2019 when the UAW was on strike for 40 days.

“When the strike ended, it was ‘ship us all your stuff right away,’ " he said.

Write to Bob Tita at robert.tita@wsj.com