"It may be tempting to blame the pandemic for these historically soaring prices, but the truth is there are several forces at play. Exploring each of them will help us understand how we got here."
June 2, 2021
Steel prices have never been higher. These all-time high, chart-topping prices have created disruptive waves throughout multiple industries – including ours. According to steel price authority Steel Market Update, last week hot rolled steel hit $1,500 per ton for the first time ever.
It may be tempting to blame the pandemic for these historically soaring prices, but the truth is there are several forces at play. Exploring each of them will help us understand how we got here. Let’s begin by setting a baseline.
The CRU Group has been tracking steel prices for more than a quarter-century, and is an authority on assessing, analyzing and making forecasts for the steel market. The CRU Group uses April 1994’s steel price as their baseline, which is represented as 100. Anything above that – up to about 200 – is normal. Anything below would be unusual.
The steel market has seen a fair amount of volatility in the past few years. We’ll use 2019 as an example. In 2019, the CRU Group recorded a steel price low of 150 and a high of 190. That represents price volatility of around 25% throughout the year. 25% is substantial, but it’s also a fluctuation the market can absorb. The increased cost can be spread between the manufacturer, the intermediate customer and the end-user.
But over the past year or so, the price has tripled. Just last August, The CRU Group put the price at 138. Today, it’s at 318. That means for any project, any building or set of components, just the barebones initial cost of steel is three times what it was just 18 months ago. So, how did we get here?
The first ingredient in today’s steel bubble is the Section 232 tariffs President Trump put in place. In early 2018, Trump imposed 25% tariffs on steel from most countries. As Star’s Heather Gillbanks explains, “There is only a certain amount of steel that you can bring in from each country, and the tariff becomes so high that it’s just not worth it.” The goal of the tariffs was to revitalize and support domestic steel production, but other unpredictable forces mean domestic production can’t keep up with demand. A few countries were exempted from these tariffs, including our neighbors to the north and south, but according to Reuters, U.S. steel prices are soaring to 68% higher than the global market. And they are nearly twice as high as China’s.
Another obvious contributing factor is the global COVID-19 pandemic and the shutdowns and quarantines resulting from it. In April of 2020, the global outlook was worryingly uncertain. Would this be over in a month? Could it perhaps go on much longer? What would the future hold? No one could predict overall outcomes with any certainty, but many steel mills did predict a drop in demand and thus reduced their labor force. Supply decreased and caused an initial price tightening.
For months, many Americans were stuck at home – either due to lockdowns, out of fear of being exposed to COVID-19, looking after kids amid virtual learning, or simply working remotely. Everyone suddenly had a close look at their surroundings, and nearly everyone decided it was time for some renovations, remodeling and updates – whether it was replacing the shed, upgrading appliances or deciding to build that new outbuilding. Many businesses decided to take advantage of the stoppage to build new structures or expand current ones. This all led to an uptick in demand and production ramping back up – and that low price of 138 in August 2020.
Then the weather cooled, the holidays rolled around and COVID infection rates spiked nationwide. Labor was reduced, quarantines went back into effect and production decreased. And as if that wasn’t enough…
In mid-February, Winter Storm Uri wrought havoc over much of the US. 170 million were placed under winter weather alerts and nearly 10 million experienced blackouts. The accumulated ice, blackouts, stress on the power grid, busted pipes and unusually low temperatures also caused the 2021 Texas power crisis, leading to the largest blackouts in the country since the Northeast blackout of 2003. All these outages in the gulf meant refineries went without power, suddenly cutting off the supply of fuel needed to fire steel furnaces. Yet another stress on the supply chain.
Barely a month later, one of the world’s largest container ships – the Ever Given – became stuck in the Suez Canal, blocking traffic for nearly a week. Much of that traffic, including the Ever Given, was carrying steel.
This unusual set of circumstances hasn’t affected the steel market alone. It has also caused skyrocketing lumber prices, a scarcity of computer chips and a giant backlog of appliances – which is delaying closings of new home construction by months.
Star wants you to know we feel the pain as much as you do, and we have some advice to bolster your business through this bubble.
Use a Mix of Materials
We’ve always been big believers in the efficiency, energy values, aesthetics and environmental friendliness of metal, but this may be a suitable time to branch out into materials to complement metal construction. Stone is just one example of a solid choice.
Prices might be tight for now, but the outlook is good. The National Association of Manufacturers (NAM) 2021 1st Quarter Manufacturers’ Outlook Survey predicts manufacturing production will exceed pre-pandemic levels in the next couple of months, and NAM’s survey also found 87.6% of manufacturers felt either somewhat or positive about their company’s outlook. In latest news, domestic production is up. Steel Market Update reported that US raw steel production is up for the third week in a row – 44.4% over this same period last year.
The future looks promising. We just need to be as patient as we are creative with solutions in the meantime. Reach out to your Star representative for more ideas and guidance, and we’ll get through this together.
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