By the final quarter of 2017, the price per ton of domestic steel in the United States was 14 percent higher than at the same juncture in the previous year. The trending increase is expected to carry forward deeper into 2018, with an expected additional increase in the price per ton of domestic steel notching upward another 6 percent during the first two quarters of the year.
Primary Reasons Underpinning Increase in Domestic Steel Prices
One of the more significant reasons domestic steel prices continue to rise is because of manufacturing capacity. Simply, there just is not enough manufacturing capacity for a broad spectrum of steel products, including in the construction industry, to keep up with demand.
With that noted, major steel manufacturers have plans to expand their production facilities in 2018. The result of this step will be to bring more finished steel onto the market, with the associated effect of notching down prices, at least to some degree.
Another recurring and pervasive issue impacting the price of steel arises from weather-related manufacturing plant closures. This does happen every year. However, the number of plant closures associated with weather was higher in 2017. These closures contributed to the overall increase in the price of domestic steel, an impact that is still being felt as we move into 2018.
In 2017, there was considerable difference in the profit or loss margins experienced by different U.S. steel manufacturers. Some companies saw profits in 2017, while others experienced losses. This unsettled state of the industry, with many producers losing money, added to the increase in domestic steel prices in 2017. This is also a trend that is moving into 2018 as well.
U.S. Domestic Versus Foreign Steel: Warping the Market
The United States steel industry is heading into 2018 facing the ongoing problem of the availability of cheaper imported steel. Specifically, the U.S. steel industry has long complained about the steel pricing schemes of several countries: Turkey, Vietnam, South Korea, and China. The stark reality is that these countries have been selling steel on the U.S. market at price points that are below what it takes to manufacture it in the first instance.
This illicit strategy by these foreign countries does not have the effect of lowering the price of domestic steel. Rather, because of the nature of the steel industry and market in the United States (and elsewhere around the world), U.S. manufacturers have to increase prices on domestically produced steel when a percentage of the market share is lost to foreign competition. This particularly occurs when foreign steel, dumped onto the U.S. market, is priced below the manufacturing cost point.
2018 is expected to be yet another year when the volume of cheap foreign steel, no matter the quality, is imported into the United States and sold at a price domestic producers simply cannot compete with.
Individual steel companies have taken the initiative to pursue unfair trade practices cases against foreign manufacturers. These U.S. manufacturers have become more aggressive in seeking redress via litigation to combat unfairly traded imports, particularly from the quartet of countries mentioned a moment ago.
The Trump Administration continues to hold fast to the idea that it intends to take on unfair trade practices in a variety of industries and market sectors. While a bit short on specifics at the moment, the Trump Administration has begun to take at least some steps to more universally address unfair trade practices, like those endemic in the steel industry and described previously.
The Trump Administration has been particularly forward in addressing illicit trade practices, and imbalances, in regard to China. With that recognized, nothing particular specific has been put forth to address the foreign steel producers’ practices in Turkey, Vietnam, or South Korea. Odds are some counter strategy will be presented in regard to Turkish and Vietnamese steel pricing practices, as far as the U.S. market is concerned.
The case of South Korea, an important and reliable U.S. ally, is more problematic. Despite the steel pricing practices associated with steel South Korea sells on the U.S. market, that nation is a linchpin in the East Asian policy of the United States. South Korea particularly (and literally) is at the front line when it comes to the ongoing showdown between the United States and North Korea. The point in all of this is that the U.S. will face limitations in what it can do to challenge South Korean trade practices regarding steel because of the state of affairs between the U.S.A and North Korea.
Light at the End of the Tunnel
The rising cost of steel may not continue unabated throughout 2018. Indeed, there is some light at the end of the price increase tunnel that has persisted for about 18 months, in a generally unabated fashion. There are two changes that are expected to occur in 2018 that will lessen or even abate the rise in the price of steel.
First, there is every reason to believe that steel prices will firm up and stabilize in 2018 because production and supply in the United States are expected to become more balanced. As mentioned previously, the imbalance in regard to production and supply has contributed to the relatively consistent rise in steel prices through 2017 and now into 2018.
Second, with pressure from the Trump Administration, and threats of retaliatory action in regard to Chinese trade practices, there is some reason to believe that the price of steel from China will also trend upward. In other words, the People’s Republic will not improperly keep steel prices deeply below actual value beginning at some juncture in 2018.
Steel Price and Commercial Construction
The cost of domestic steel has driven up the costs of commercial construction in 2017, at least to some degree. There is a desire among commercial contractors to avoid using imported, and lower priced, steel whenever possible. Thus fire, the price of domestic steel has not risen to the point that it impacted commercial construction so significantly that U.S. contractors and builders turned to foreign alternatives.
In 2018, many construction industry analysts believe there will be come price flattening in commercial construction costs as a result of what they describe as possible-to-likely slowing in the rise of the price of domestic steel.
This is a guest article written for Bonneville Builders by Jessica Kane. Jessica Kane is a professional blogger who writes for Federal Steel Supply, Inc., a leading steel tubing suppliers of carbon, alloy and stainless steel pipe, tubes, fittings and flanges.