The past year was a rough one for the flat steel supply chain. Will declining interest rates lead to better things in 2025?The start of any new year typically brings renewed optimism in the flat-rolled steel market and 2025 shapes up no differently. But is that optimism buoyed by the fundamentals or mere irrational exuberance?
It’s safe to say that 2024 was the least-friendly of the post-pandemic years, characterized by slowly falling prices and stagnant, at best, demand. None of the major steel-consuming sectors were terribly robust over the past year, from automotive to construction to general industrial.
Perhaps the most noteworthy development in the flat-rolled sector did not involve any particular end market, but the news from one of the industry’s largest suppliers. In the spring, Nucor introduced a new weekly hot-rolled coil spot price, upending years of opaqueness on flat-rolled pricing. What impact that decision had on the industry at large remains to be seen, though Kallanish’s Sales Manager - North America’s Brian Jurcyzk offered a straightforward observation about its future.
“If there are benefits to Nucor, they will continue to post prices. If they don’t find that value, they’ll stop,” he said.
The uninspiring market conditions of 2024 could give way to a little more positive conditions this year.
“A lot of people we are talking to are just feeling better,” Wolfe Research Equity Research Analyst Timna Tanners said during a post-election webinar with Steel Market Update. “There have been a few more orders coming in from what we hear. Lower taxes coming through and less regulation are good for business and could get people off the fence.”
ITR Economics’ Taylor St. Germain was a guest of SMU in December. His company is anticipating 2025 to be the start of five consecutive years of GDP growth. And that will include the industrial side of the economy.
After bottoming out in 2024, the industrial economy should soar in the coming years. “The reason we’re getting new record highs is because of onshoring and nearshoring, which will continue to come back to the U.S. Whether it’s lessons learned from the pandemic or the result of tariffs, whatever you chalk it up to, it’s good news for the industrial economy,” St. Germain said.
Of course, one of the biggest reasons for optimism is the reduction of interest rates, which started in the second half of 2024 and are expected to continue to take place in 2025.
“The fed rate, mortgage rates, the rates in general are critical for steel consumption. We’ve got auto loans for the auto sector affordability and construction is very linked to interest rates,” said Tanners, while noting it’s been somewhat surprising that mortgage rates themselves had not followed suit, but instead increased.
On the demand front, there aren’t any markets poised for big gains, though there could be some shifts based on the new administration’s priorities. While activity in the oil and gas segment is largely driven by the pricing dynamics for crude, a lessening of regulations around the industry could also spike some growth.
“If you go back to the first Trump administration, there was some demand for midstream markets for energy, which is a pretty good sector for the steel industry. Those are really big projects that end to be hot-rolled or plate,” said Michael Fitzgerald, vice president of business development, metals, for Argus Media.
Conversely, the Biden administration’s priorities, reflected in the Inflation Reduction Act such as cleaner energy types of production, could be put on the backburner under the Trump administration.
“Some of the offshore wind, some of the solar projects that have been so huge for galvanized, could see reduced funding,” Tanners said.
On the automotive side, S&P Global predicts a modest increase of 1 to 2 percent in U.S. sales in 2025, up to 15.7 million units. Affordability remains an issue.
The outlook is more favorable on the residential construction side. A forecast from Realtor.com projects new home starts in 2025 to top 1.1 million, a healthy 13.8 percent increase from the prior year. The push is expected to address the country’s dramatic shortage in housing. Along those lines, the new homes are expected to be smaller than the average single-family homes built during the recent past.
Multifamily building declined sharply in the recent past, but it also expected to rebound in 2025 Nonresidential construction, which uses more flat-rolled steel than its residential counterpart, is not expected to enjoy such strong gains, but increases are generally anticipated by most market analysts. Even the weakness in its most recent billings index from AIA isn’t leading to panic, owing to the still-healthy backlogs in the nonresidential segment.
Of course, heading into 2025, the biggest point of conversation for the flat-rolled and other industries is what the once and future president will do when it comes to tariffs.
In his first term, tariffs were his signature method of managing trade and no industry benefited from President Trump’s actions more than the domestic steel production industry. The enactment of Section 232 tariffs of 25 percent on steel and 10 percent on aluminum drove increased demand and record profits for steelmakers.
While 232 is still in place, the subsequent years have resulted in some softening of their effects, either through quotas or other arrangements. In his pre-inauguration comments, either on the campaign trail or after his victory, the 47th president seems to be considering a more broad-based approach to the levies.
“Tariff-related campaign promises centered around a broad use of tariffs such as a 20 percent blanket tariff on all imported items as well as a 60 percent tariff on all imports from China,” wrote CRU’s Josh Spoores following the election.
Spoores cited one campaign speech that discussed the possibility of a 200 percent tariff on all John Deere products imported into the United States. Another speech said he might do the same on all autos produced in Mexico.
Whether those come anywhere close to taking effect remains an open question, but it highlights the certain unpredictability the newly elected president brings back to office.
“President Trump is unique in terms of scale of approach used to encourage new foreign direct investment into steel-intensive manufacturing alongside pressuring companies to reshore. If reshoring investments in the U.S. do take place, we could see domestic demand for steel rise at a faster rate than expected,” Spoores continued. “One caveat is that this style of investment and shifting of supply chains will take time.”
Trade measures are the one exception to the idea that the only “cure for imports is to not invite them in by having such a higher price,” Tanner said.
But Fitzgerald warns that the pricing effects may be temporary if they’re not backed by stronger supply and demand fundamentals. The 2018 Section 232 tariffs led to an immediate spike, as domestics hiked prices in response to the higher prices for imported material.
“We saw that back in the back half of 2018, where you got prices to surge on the back of announced tariffs, but for an extended period after that they were falling pretty steadily. There could be a bit of a hangover after the initial party of the tariffs,” he said.
While tariffs could spur some activity, they also could come at a cost. “If we see tariffs put in place, it’s more likely to see price increases,” St. Germain said.
If more tariffs are placed on imported steel products, it will have an effect on pricing. That could help counter any increases in flat-rolled capacity, whether through the new Big River facility or continued ramping up at the Steel Dynamics’ facility in Sinton. Tanners has been the most vocal about the new steel production putting downward pressure on pricing.
Fitzgerald noted that hasn’t really materialized for a few reasons. First, the new capacity tends to come online slowly, rather than in a torrent. That allows the steel-consuming industry to absorb the new capacity better.
“The market is always talking about new supply, but it hasn’t steamrolled the market,” he said.
Additionally, he noted some of the new capacity is targeted at newer markets or segments the mills previously hadn’t been in, again limiting its effects. And since the new capacity is EAF-based, the steelmakers have a better ability to match supply to demand.
Tanners is predicting fewer imports into the U.S. in 2025, with or without tariffs. But it’s not likely to support a dramatic boost in pricing, she said, because the domestic industry is more than capable of filling the void.
She’s projecting the hot-rolled coil price to average $750 per ton in 2025, which would represent an uptick from how 2024 ended but still lower than the full-year average this past year.
Interestingly, Fitzgerald said, for all the talk in recent years about a new normal in steel, the past year looked a lot like one of the old normal ones. “In the last six months, we’ve been in a pretty standard steel market. There hasn’t been much volatility.
“Will that change going into a Trump administration? We’ll have to wait and see.”
[Caption:]
Onshoring and nearshoring could drive major gains in U.S. manufacturing. (Photo courtesy Grand Steel)