Final Thoughts

#9 – Supply Chain Snarls: A byproduct of the surging U.S. economy, bottlenecks in seaborne shipping, rail and trucking have led to delayed deliveries of all types of goods, including steel. On the plus side, experts say, this could translate into pent-up demand in 2022. 

#8 – Industry Mergers & Acquisitions: The steel industry continued to consolidate at both the mill and distributor levels as M&A activity heated up. Notable deals included Cleveland-Cliffs’ $775 million purchase of Ferrous Processing and Trading (FPT), which made a big splash in the ferrous scrap market. Another example: Reliance Steel & Aluminum’s acquisition of Merfish United, which expanded the giant service center’s reach into the tubular products market – not only in steel but also in copper and plastics.

#7 – Decarbonization Moves to the Front Burner: Ominous warnings of global warming and its potentially disastrous effects on the environment finally appear to be gaining some political ground. Steel mills, long considered notorious polluters, are now among the many corporate voices touting ambitious goals to reduce carbon emissions from their operations – not only for altruistic purposes but also because customers now demand it. Based on reports from COP26, the UN Climate Conference just held in Scotland, the challenges ahead to save the plant remain daunting.

#6 – The Chips Were Down for Automotive: Next to construction, automotive is the biggest market for steel. A global shortage of the microchips that are essential to vehicle electronics caused plant shutdowns and production delays amounting to lost sales of some two million cars and trucks this year. As a result, there’s an oversupply of automotive-grade steels that could end up on the secondary market, adding downward pressure to steel prices. On the plus side, once carmakers get the chips they need, production and sales are expected to skyrocket – including surging demand for the new generation of electric vehicles.

#5 – Section 232, Trade’s Hot Potato: Ever since President Trump imposed his Section 232 tariffs on steel and aluminum imports back in 2018 on debatable “national security grounds,” they have been a source of resentment among trading partners, friend and foe alike. The 25% tariff on steel and 10% tariff on aluminum did, however, reduce competition from foreign suppliers and clear the way for domestic mills to raise prices to record levels. Trade negotiations have resulted in the removal or modification of Section 232 on several nations and regions – notably Canada, Mexico and most recently the EU. But the duties remain in place on many big steel-producing nations such as Russia, Japan and Turkey. And quotas remain in effect on imports from Brazil and South Korea.

#4 – Steel Imports Surge: Steel prices in the U.S. rose to such high levels this year that foreign mills could afford to pay the 25% tariffs and still make money. U.S. prices have ranged from approximately $400-800 per ton higher than foreign steel, depending on the product and country of origin. Steel imports jumped by about 37% through the first 10 months of the year. Yet demand has been so strong that domestic prices didn’t really begin to respond to the competition from offshore until the fourth quarter.

#3 – Reinvesting the Windfall: Virtually all the publicly held companies in the steel industry reported record sales and profits this year because of the historically high steel price tags. To their credit, most have announced plans to reinvest the windfall in new and upgraded production facilities. The list of projects is too long to detail here, but in the aggregate will add an estimated 23 million tons of steelmaking capacity in North America, offset somewhat by idlings and closures of older mills.

#2 – Biden’s Infrastructure Bill: After months of debate and political infighting, Congress was finally able to pass long-needed infrastructure funding that stands to be a boon for the steel industry. The measure includes funding for about $850 million in steel-intensive projects that will upgrade the nation’s roads, bridges, rail, ports and the electrical grid. That equates to as much as 40-45 million tons of new steel demand over the life of those projects, by industry estimates.

#1 – Historic Steel Prices: Observers can debate the order of the ranking above, but there is no disputing that steel prices have dominated the industry headlines in 2021. Fueled by trillions in government stimulus to keep the economy from succumbing to the fallout from COVID, steel demand far exceeded supply for most of the year. The benchmark price for hot rolled steel quadrupled, from less than $500 per ton to a peak of $1,955 per ton, in a September-to-September comparison. Steel prices are likely to be the top story again in 2022 as the market waits anxiously for an expected correction.

Upcoming SMU Events

• Jan. 11 & 12, 2022 – SMU’s popular Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be held virtually in January. Info on the agenda, instructors and costs is available by clicking here

• Feb. 1 & 2, 2022 – SMU’s Introduction to Steel Hedging Workshop is also a virtual event covering techniques to protect your company and customers from steel price volatility. More information is available by clicking here

• Feb. 14, 15 & 16, 2022 – The 33rd Tampa Steel Conference, an in-person event, will be held at the Marriott Water Street Hotel in Tampa, Fla. You can learn more about the agenda, speakers, costs to attend, and how to register by clicking here

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com