Steel Prices – A Summer of Discontent

Share on Facebook  Share on Google+  Share on Linkedin
 
Volatile steel prices so far this spring/summer have certainly laid the ground work for a summer of discontent among steel building buyers. When we started receiving notifications from our major steel suppliers last April of a modest 5%-6% price increase that would take effect in early May, we were not surprised as our industry had not seen a price increase in over 20 months. Little did we know, the summer of 2016 steel price roller coaster ride was just getting started.

 

Within weeks of our April price increase notification, rumors started circulating that a second much larger price increase was on the horizon for June and possibly yet another increase in July/August. The idea of back-to-back price increases, only weeks apart, seemed impossible to many in our industry - even long time veterans. There had to be some external forces at work here to impact the price of steel this significantly in such a short period of time. As it turned out, we learned that the external forces were the US Commerce Department, China and a somewhat complex tale of global economics and international trade.

 

It's no surprise to anyone that follow the news and markets that many of the world economies have been slowing down over the past 12-24 months, including the world's largest producer of steel: China. To put things into perspective, China produces nearly 10x the amount of steel that the US produces and it produces more steel than all the other steel producing countries in the world combined. As world economies have slowed, so did both China's domestic and export demand for its steel. In an attempt to weather this drop in demand, instead of laying of domestic workers at its steel mills and cutting output, China maintained capacity and chose to "dump" artificially low priced steel on international markets. The result of this was a period of incredibly low steel prices for buyers and a period of crushing profits for US-based steel manufacturers who simply could not compete with cheap Chinese government subsidized steel. Last year alone, US Steel posted a loss of nearly $1.5 billion.

 

Enter the US Commerce Department, which earlier this year levied anti-dumping tariffs of 522% on steel coming from China. Understandably, this action was intended to give our US domestic steel producers a fighting chance to compete against their Chinese counterparts but those industries (the steel building industry among them) who became accustomed to artificially cheap raw materials were going to have to pay more for them. Additionally, the consumers who purchase products that use steel (including steel buildings) were going to pay more as well. Unfortunately, none of this is within the realm of our control... not ours, not yours.... we are all going to simply pay more, period.

 

So when is the roller coaster ride over? The answer to that is largely a matter of speculation at this point. An unintended consequence of the 522% tariff was panic buying of steel which has driven up the price even further by creating false demand. While another price increase this summer is possible, we think that prices will level off after that and remain steady into 2017. One of the many wild cards affecting this issue is a petition by US Steel to the US Commerce Department to completely eliminate the importation of some steel from China. If the US Commerce Department grants US Steel's request, volatility and uncertainty will rear their ugly heads to an extent our industry has never seen before. Stay tuned.

Price Your Building