Massive steel rally hits all parts of the global economy

As prices have surged across all commodities, the 220% jump in US steel over the past year overshadows other high-profile commodities such as copper and crude oil. A Standard and Poor’s index of steel companies, which includes Nucor, Cleveland-Cliffs and US Steel, is up 69% in 2021, by far the benchmark’s best performance in the first five months of the year .

The rally seemed unimaginable to steel executives just 10 months ago, who said it could be at least 2022 before demand for metals returned to pre-pandemic levels. The rapid recovery and slow ramp-up of steel plants have depleted stocks that were already low at the height of the pandemic.

Lumber, a market where producers have also been taken aback by a surprise increase in housing demand, is one of the few materials to have recorded comparable gains. And even home builders have to consider the impact of tight steel supply.

No devices

Carl Harris, who spent 36 years building homes, said he envisions two-month delays on refrigerators, stoves and dishwashers. Delivery times that are normally two to three weeks are now six months in many parts of the country, he said.

The lag means Harris can’t install the appliance package to market the empty two-bedroom nesting house in Newton, just outside of Wichita, Kansas, even if the rest of the house is ready. He said other builders in the area are also struggling to secure plumbing fixtures, which must be in place before a certificate of occupancy is issued.

“A lot of steel is used in appliances, so we’ve seen a huge delay in getting some appliances so we can shut down those homes,” Harris, managing partner at Harris Homes in Wichita, said during a phonecall. “We are seeing significant shortages.

It is also becoming more expensive to drill in the shale area, as rising prices for steel, cement and other supplies and services result in higher costs for explorers, according to Citigroup. Steel prices for drill pipe used in new wells could increase by about 50% in 2021, Citigroup said.

Ford Motor executives said on a conference call in the first quarter that the company saw commodity prices rise primarily for aluminum, steel and precious metals. He expects to see an increase of about $ 2.5 billion in commodities from the second to the fourth quarter, “so that’s going to hit us for the rest of the year,” said John T. Lawler, chief executive. Ford financier.

“Shock sticker”

There is a risk that high prices will start to make buyers hesitate or seek substitutes where possible.

“At one point, that causes demand destruction,” Keybanc’s Gibbs said. “Try to buy a household appliance, a new house – everything gives more sticker shock.”

There are also signs that the supply crisis could improve.

According to Andrew Cosgrove of Bloomberg Intelligence, US steelmakers are expected to build up about 4.6 million tonnes of annual production capacity by the end of 2022, an increase of about 4% from current levels. Additionally, the surge in prices has given President Joe Biden’s administration a reason to consider removing Trump-era tariffs on steel imported from the European Union.

And in China, the world’s largest consumer and producer of steel, the government has repeatedly reiterated its commitment to curb record production since late last year. Yet factories across the country are producing unprecedented volumes of steel.

But for now, steel customers looking for immediate supplies, or spot metal, have to pay more and wait longer.

“There aren’t a lot of spots available,” Heidtman Steel’s DeMare said in an interview. The factories “have limited their order books, capped the number of orders to be able to start to catch up”.

Bloomberg


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