Steel buyers rejoice: Prices for the metal should continue their long-term decline over the coming months, falling some 24% below current levels to reach $710 per ton by the end of 2024. “If current trends continue, prices will be down for the third year in a row, which is historic,” said Josh Spoores, Head of Steel Americas Analysis at CRU, a market analysis and forecast outfit.
Steel is an essential component for the construction industry, and any price reduction is welcome. But what gives? Why is steel getting cheaper while costs for other materials are rising?
The most immediate reason is the peculiar nature of the post-pandemic market. Steel prices skyrocketed after COVID restrictions were lifted as a spike in demand choked on kinks in the supply chain. “We just couldn't get enough steel to fill the orders,” said Spoores. “It took multiple quarters to work off those shortages, and we’re now seeing a slowing of momentum as the market moves toward a steadier state.” As America continues to replenish its inventories, steel prices are bound to soften.
Supply and demand
Another important driver of lower prices is China’s post-pandemic economy, which is recovering more slowly—and thus using less steel--than expected. The U.S. domestic construction industry is following suit. “Despite the incredible demand for housing, high interest rates have kept a lid on construction of single-family homes,” said Larry W. Williams, Executive Director of the Steel Framing Industry Association.
High interest rates and remote working arrangements are also putting a damper on the commercial construction sector that would normally be soaking up more steel. “Developers are putting many projects on hold while waiting for more favorable rates and more certainty in domestic and global politics,” said Williams. Construction’s one bright spot is the industrial sector, which is being supported by funding associated with The Bipartisan Infrastructure Law and Inflation Reduction Act.
All of this lackluster steel demand is coming at a time when China is unloading excess product on the global market at very low prices. While the Biden administration is responding with higher tariffs on Chinese imports, the move is not expected to add much to the metal’s price. That’s because China accounts for only 2% of steel imported to the U.S. (Canada accounts for 24.5%; Mexico for 15%; and Brazil for 14%).
U.S. steelmakers are also adding to the excess supply situation by returning to a market long dominated by imports. “Steel production has been rising faster than demand as manufacturers build new mills and enlarge old ones,” said Spoores. “As a result, we should start to see imports fall off.”
Industry representatives echo the forecast. “The American steel industry has the capacity to meet the need for more steel to build our clean energy economy,” said Kevin Dempsey, president and CEO of the American Iron and Steel Institute. “Our companies are continuing to invest in new and upgraded capacity specifically designed to meet the needs of power producers and EV manufacturers.”
Hot-rolled coil steel prices
| $ per ton | |
|---|---|
| September 2022 | $744 |
| December 2022 | $742 |
| March 2023 | $1,109 |
| June 2023 | $918 |
| September 2023 | $715 |
| December 2023 | $1,135 |
| March 2024 | $931 |
| June 2024 | $725 |
| *September 2024 | $790 |
| *December 2024 | $719 |
New technology
But wait a minute: Steel is a fuel intensive product with famously dirty blast furnaces. And the new U.S.-based mills are utilizing more advanced—and costlier—electric arc furnace (EAF) technology which boasts of superior emissions control as it produces new material from recycled product. Why aren’t those higher costs being passed along to steel buyers?
They would be, except for the fact that EAF technology also provides steel makers with a production flexibility that helps save substantial money. “You can essentially run the EAF mill like the dimmer switch in your dining room,” explained Spoores. “You can slow it down, speed it up or turn it off. In contrast, a blast furnace needs to run at least 70% of capacity and ideally closer to 85% to be cost effective. If you’re in a market where you can run a blast furnace at that capacity it can produce steel at lower cost than an EAF mill. But the problem is that steel is seasonal and subject to variable demand.” Bottom line: over time, EAFs produce steel more economically.
Little wonder steel makers are jumping on the green energy bandwagon. “The world of steel will be dealing with decarbonization for the next two or three decades,” said Dale Crawford, Executive Director of the Steel Tube Institute. “It’s being discussed at every conference and in every C-suite and corporate boardroom. Steel is endlessly recyclable, which is why it is the most sustainable structural and electrical product that you can use to make products for buildings and infrastructure.”
While the U.S. is the leader in the drive to decarbonate steel, other nations ramping up production—notably India—often lack the benefit of decades of a circular economy that can provide enough recyclable steel for EAF production. As a result, they are likely to keep using the older, dirtier, Basic Oxygen Furnace (BOF) steelmaking technology.
Things to come
A world committed to solar and wind energy—as well as to electric vehicles—will need a lot of steel. Can the industry fill the bill?
“The American steel industry is well-equipped to meet future demand,” said Dempsey. “Capacity (the currently utilized portion of total potential factory output) was recently 77.3 percent. And that is down, slightly, from the same period last year when it was 78.6 percent. So, our existing facilities can certainly produce more product. In addition, we have millions of tons of new production coming online over the next couple of years.”
In the meantime, demand for steel is expected to remain lackluster until certain market uncertainties are resolved. Many developers in the U.S. are waiting to see what happens with the November elections, for example. “The market might go in very different directions, depending on who's in the Oval Office,” said Williams. “Biden might continue to spend money on infrastructure, while Trump may introduce a significant round of tariffs that could be inflationary or could have some other impact on the market. The uncertainty is causing people to sit back and keep their finger in the air a little bit longer just to see where things are going.”
Global events can also serve to depress construction plans. Williams points to instability in the Middle East, along with the Russian-Ukraine war, as major stressors. “Developers are asking, ‘How are we going to adjust if certain factors like a war, or campus rebellions, spin into something much larger?’”
In response to these uncertainties, many companies in the construction industry are soft peddling development. “Hopefully we get into an environment in 2025 where domestic and global politics are a little bit more predictable, along with lower interest rates,” said Williams. “That will help create a very strong environment for construction and for steel.”
Until that day arrives, buyers of steel will enjoy favorable pricing. Inflation may be overstaying its welcome in many sectors of the economy. But steel refuses to participate.
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