Steel Industry Impact: Costs & Lead Times

By Travis Mikulenas, Director of Primary Steel Procurement at Bradford White

Many in the steel industry will describe its cyclical pricing swings like people talk about the weather here in Michigan; If you do not like the current situation just wait 15 minutes and it will change.

The current domestic steel market is not being enjoyed by consumers of any type. A supply crunch and subsequent pricing surge are being felt by steel users of all types from automotive and appliance manufacturers to construction and infrastructure contractors. Prices have nearly tripled since an August 2020 low. The question many are asking is whether this current surge in pricing and increase in lead times will fall apart as quickly as it came together like the many cycles that have come before it.

Unfortunately, two key impediments to relief stand in the way of easier procurement of the materials we all need to support construction and manufacturing on time, let alone at favorable pricing!

1. Consolidation: Mining company Cleveland-Cliffs has become the largest domestic steel producer by total capacity after having a grand total of no steelmaking capacity as recently as Q4-2019. Two major acquisitions by this firm have led to the creation of a steel capacity juggernaut. With a CEO known for aggressive moves to drive value for his shareholders, it is not apparent that the company will be re-opening assets shuttered during the depths of the pandemic to make the lives of us steel consumers easier. As an industry the domestic steelmakers are collectively producing around 250,000 fewer tons per week right now than they were in Q1-2019 or Q2-2020, this is around a 15% shortfall!
2. Tariffs: Former President Trump’s defense-related steel tariffs remain in place, and the Biden Administration does not appear to be in any hurry to lift these protectionist actions. The impact sought by the Trump administration is certainly being felt; imported steel goods are at their lowest levels in years, with around 100,000 fewer tons per week arriving in the US than in recent history. Domestic steel prices have risen so high that foreign steel prices are now financially palatable, but their months-long lead times are keeping many buyers on the sidelines for fear of a domestic pricing correction.

These two issues combine to leave the domestic steel market short by nearly 1,500,000 tons of needed capacity every month until resolved. Meager help is on the way in the form of expansions by domestic producers like Steel Dynamics, US Steel/Big River, BlueScope, and Nucor but these additions are months off and will come online gradually over time. Given the current situation of massive price increases and long lead times to acquire steel, these new additions may do little more than slow the pace of increasing costs and material shortages for the foreseeable future.

For now, the game is strictly about supply availability to keep construction projects on schedule and manufacturing plants running regardless of the painfully high prices that must be paid to acquire materials.