Steel Market Cools as Supplies Expand

Though prices remain high, executives say the drop is a relief for manufacturers and construction firms after months of panic buying and low inventories made U.S. steel the most expensive in the world last year. For U.S. steelmakers, though, sliding prices pose a risk with new steel plants under construction, potentially adding millions of tons of annual steel production over the next two years.

Since late September, when the spot-market price for hot-rolled sheet steel reached a record $1,960 a ton, prices have fallen by more than one-third, according to S&P Global Platts. The decline has accelerated since the start of December, falling by $480 to a recent $1,270 a ton, a level last seen in March 2021.

“There’s no longer a hunger to restock steel,” said Jim Barnett, chief executive of Grand Steel Products Inc., a Michigan-based distributor that supplies steel to the automotive, appliance, construction and furniture industries. “That’s had a direct and immediate impact on pricing.”

Steel has been a major source of cost inflation for manufacturers during the past 18 months. Mr. Barnett and others in the industry said they expect prices to continue to fall this year as new mills commence production and more imported steel arrives to fortify inventories.

Lower prices will likely take months to flow through supply chains, since many manufacturers purchase steel through fixed-price contracts, while other costs like semiconductors, transportation and labor remain high.

Bill Adler, president of Cleveland-based Stripmatic Products Inc., said steel is his company’s largest expense, accounting for as much as 70% of the cost of the metal tubing his company makes for the automotive and truck industries. Before the pandemic, he said, steel accounted for about 50% of the tubes’ cost.

“Seeing prices come down is a huge help to us,” Mr. Adler said. Stripmatic has started to offer bids on jobs based on lower steel prices, he said, after losing work last year to foreign-based competitors that could offer price quotes with less expensive steel.

As prices for steel soared last year, imported steel reasserted itself in the U.S. market after being held in check by tariffs in recent years. Lower prices for imported steel—even with tariffs and transportation costs—are attracting some manufacturers to the import market after years of staying away.

“We’ve gotten a little bit of foreign steel. We’re dipping our toe in the water,” said Stuart Speyer, president of Tennsco Corp., a Tennessee-based manufacturer of steel shelves, lockers and file cabinets.

Imports in 2021 from January through November last year rose 46% from 2020, according to the American Iron and Steel Institute trade group and the U.S. Census Bureau. The Biden Administration’s quota arrangement negotiated last year with the European Union will allow more than 3 million tons of steel a year to enter the U.S. without a tariff beginning this year.

As much as 10 million tons of additional production capacity for flat-rolled steel are expected to enter service in the U.S. by the end of 2024. Nucor Corp. NUE 3.15% , the largest producer of steel in the U.S., is building new mills in Kentucky and West Virginia. United States Steel Corp. is doubling the steelmaking capacity of its Big River Steel operation in Arkansas. Analysts said the latest building spree will test steel executives’ resolve to avoid a market glut by keeping production aligned with demand.

Nucor said Thursday it plans to slowly start newly completed production capacity for more sheet steel at its Gallatin County, Ky., plant over the next couple months.

“We’re going to be disciplined,” Nucor Chief Executive Leon Topalian said. “We’re not going to flood the market just because we want to produce the steel out of Gallatin.”

Steel Dynamics Inc. STLD 1.07% CEO Mark Millett said he considers higher steel inventories, rising imports and falling prices as temporary, seasonal market conditions that will soon resolve themselves.

“We don’t see any change in the underlying consumption of steel, nor do we see it happening over the months or quarters ahead,” Mr. Millett told analysts this week. January, he said, has been one of Steel Dynamics’ best months ever in terms of orders for flat-rolled steel.

The Indiana-based company expects to begin producing steel next month at a new mill in Texas that is projected to ship 2 million tons of sheet steel this year. Steelmakers brought about 8 million tons of flat-rolled steel capacity into the U.S. market in the past two years that were largely offset by closing or idling older, higher-cost mills in early 2020. Those moves were criticized by some steel customers who endured long waits for steel this summer.

Steel companies’ continued pursuit of more new mills is undergirded by strong demand for steel during the pandemic, driven by increased spending on goods ranging from refrigerators and pickup trucks to building materials. Industry analysts and steel-company executives said production of consumer goods could accelerate further this year with more semiconductor chips, which held down auto production last year.

Even with steel prices falling, U.S. Steel Corp.’s fourth-quarter net income topped $1 billion, compared with $49 million a year earlier, the company said Thursday. Nucor said its quarterly profit soared to $2.25 billion from $399 million during the same period in 2020, despite a 6% decline in sheet-steel shipments.

Some expect steel prices to stabilize this year, settling at permanently higher levels than in the decade that preceded the Covid-19 outbreak to account for higher demand and rising costs for raw materials such as scrap steel.

“American manufacturers underbuilt and underproduced for years. That may be turning around,” said Jeremy Flack, CEO of Flack Global Metals, a Chicago-based steel distributor. “The price of steel is going to be higher for everything.”

Write to Bob Tita at [email protected]