Are Steel Prices Going Up? Why?
You may have asked this question and gotten an apathetic generalization, distilled down to just a couple of words: The Pandemic. While that seems self-explanatory on the surface, the complex ecosystem of supply and demand, coupled with the massive upheavals of day-to-day operations in the supply chain, means that the actual reason for skyrocketing steel prices is a bit more nuanced.
As a company building Racking Systems in China, we know that steel prices have a layered effect on our industry. Here are some of the reasons why the prices are as high as they are, and a few creative ways to deal with it.
Supply Chain Interruptions Due To Changes In Production
The classic “supply and demand” principles in this situation get a little skewed when we confront the intersection of international supply chains amidst a global pandemic. While some international suppliers, such as China, are locking down to stop the spread of COVID-19, other countries are still operating. The ripple of lockdowns pops up in waves across the globe at different times, which creates an inconsistent supply chain with continuous stop-and-starts.
When international suppliers and manufacturers have inconsistent production, demand turns to local supply, which is then quickly overwhelmed- driving demand (and thus, costs) up.
Demand For Steel Is Increasing Lead Time And Prices
When demand for steel is high, any producer with steel to spare is wise to put that steel out on the market. Struggling to meet increased demand, reserves of steel and iron ore are depleted faster than normal without supplies being restored. The effect? Additional lead times to allow for replenishment of supplies and time to complete orders.
As an example, members of OSSFA (Ontario Structural Steel Fabricators Association) were recently notified in a letter to the editor of Daily Commercial News that the historic rise in material pricing of structural steel was leading to increased lead times.
Billet Steel (the blocks of metal used for melting) have had a previous lead time of 2-3 weeks from the order time. The supply chain changes have caused a lead time to jump to 6-8 weeks with little to no guarantee that the steel mill will receive your order for process within 30 days.
Previous timeline guarantees are no longer viable. Taxed by a lack of access to raw materials, Steel manufacturers have to shift timelines and adjust guarantees, since the previously accepted standards can no longer be adhered to.
Longer lead times, lack of access to raw materials and the increased time and resources now required for international shipping and receiving mean that the industry is struggling to remain streamlined during the unstable ground it is working on.
Iron Ore Prices Are Rising
Iron ore prices are rising. When raw material prices increase, that cost snowballs down through all aspects of production. The additional cost of Iron ore means higher processing costs, increased shipping costs, of course, international shipping, handling, and customs fees. Even when the industry saw earlier shipping in post-Holiday orders, the demand for raw materials and the cost associated with them continued to rise.
Okay, So What Can We Do About Rising Steel Prices?
We have good news and bad news. Let’s stick with the bad news first.
For the immediate future, there isn’t much we can do about rising steel prices. As long as supply chains remain inconsistent, as long as various points across the world are shutting down off-and-on to control the global Pandemic, and as long as reserves of Steel and Iron ore remain depleted below industry confidence, prices are likely to increase, or at least- remain high.
Sorry- we know that sucks.
But don’t worry- we have some good news too.
There might not be ways to bring the cost of steel down for your or your company at this moment, but there are ways you can reduce your need for steel.
As a Racking company, with years of experience in racking Installation and racking systems, HEDA ShELVES can provide you with some tips specifically geared around your warehouse needs. If you run or manage a warehouse, you may want to consider some of the following ways you can reduce your steel needs for your Warehouse.