Steel prices have risen relentlessly since bottoming out last summer and hit new record highs in February.
Steel Market Update (SMU) canvassed the market Feb. 8-9, and results revealed the benchmark price for hot-rolled steel at a new record high of $1,180/ton ($59/cwt) (see Figure 1). Prices were up 168% from the August 2020 low of $440/ton. They also were up 9.3% from $1,080/ton in mid-January, when the spot price first surpassed the prior record of $1,070/ton ($53.50/cwt) published by SMU in 2008.
Lead times for spot orders from steel mills have extended to record lengths in the past six months but appear to be leveling out. Lead times are a leading indicator of demand. The longer the lead times, the busier the mills are, and the less likely they are to discount prices. The average lead time for hot-rolled steel was nearly eight weeks in mid-February, twice as long as the historical norm.
With U.S. steel prices high, lead times long, and supplies of some items scarce, more buyers have rolled the dice and placed orders for foreign steel for delivery over the spring and summer. The hope is that the domestic price doesn’t plunge in the meantime. Steel imports into the U.S. declined to around 22 million net tons in 2020, a 21.2% decline from the prior year. Part of that drop was the pandemic’s effect on demand; another factor was the Trump administration’s 25% Section 232 tariff. Domestic steel prices have gotten so high that foreign mills can offer savings to U.S. buyers even factoring in the tariff and shipping costs.
SMU’s service center inventories data shows distributors’ stocks at record low levels. Flat-rolled service centers held less than 37 shipping days of supply in January, down from nearly 53 days at the same time last year. Much of that can be attributed to the lack of availability of steel, as distributors have struggled to source enough material to meet customers’ needs. Some of that, however, is undoubtedly by design. Service centers are reluctant to purchase steel today when they believe it will be cheaper tomorrow.
Service centers also report more difficulty passing on higher prices as fabricators and manufacturers dig in their heels and resist further price escalation (see Figure 2).
Steel prices are a function of demand. The American Iron and Steel Institute reports that domestic shipments declined by 15.8% last year to around 81 million net tons. How much of that can be attributed to the pandemic, and how much to other economic factors? One such factor is the shortage of microchips that has disrupted auto production, delaying assembly of some 400,000 vehicles this year—and demand for a substantial amount of steel.
The good news is that it appears the worst is behind us. The global economy is expected to go through recovery in 2021. Beyond general economic recovery, the fastener industry is positioned to be one of the most powerful growth industries. There’s no doubt that tight supply has been a major contributing factor on rising steel prices throughout 2020. As we move out of quarantine, though, experts expect growing demand to have an even bigger impact on steel prices in 2021.
We’re already beginning to see the first glimpses of economic rebound and recovering demand. In fact, surveys by the Steel Market Update showcase how global steel mills have been busy filling up orders since mid-November. Many buyers are also starting to take notice at how order books are filling up fast. As much as 86% of the steel buyers who responded to SMU’s poll in November expected further steel price increases from mills. Based on these figures, it’s likely the uptick in steel demand we’re currently seeing is only the beginning. There’s no telling what the future holds, but there may be even more price increases to come.