Steel Prices Might Be Skyrocketing Soon: Here’s Why
By TK Sanders | Originally posted on outsider.com
With the global supply chain currently experiencing unprecedented chaos, raw materials like steel are sometimes hard to find these days.
Steel is not a product that gets bought by consumers, but it comprises hundreds of products that consumers do buy each and every day. Therefore, even though a shortage may not directly affect you, the consumer, it would likely indirectly affect you in some way.
“Steel is certainly one of those examples of shortages, higher prices, and growing frustration among customers,” Associated Builders and Contractors chief economist Anirban Basu said.
When the pandemic began, steel demand (and prices) actually dropped. But once the market recognized an impending supply chain crisis bubbling, steel prices soared to unprecedented levels. Before the pandemic, steel prices averaged between $500-$800 per ton. Since then, it has gotten as high as $1,900 per ton.
When demand rises steadily, but supply dwindles, bubbles in the market form. Analysts worry that the bubble is going to burst soon.
“They have turned into a bubble. So, they go higher because they go higher,” CRU Group analyst Josh Spoores said.
Why Prices Continue to Rise
The effect on prices becomes exponential as demand grows. Currently, the economy continues to expand at unprecedented rates. Money is cheap to borrow, and the federal government wants to invest in infrastructure. Therefore, as more money than ever flows into a world dependent on steel, it bottlenecks at the point of distribution. Steel then goes to the highest bidder instead of circulating freely throughout the entire economy.
“We estimate that for every $100 billion of new investment in infrastructure, that’s going to mean 5 million tons of additional steel demand,” American Iron and Steel Institute CEO Kevin Dempsey said.
The federal government has deep pockets and loves spending money on projects to campaign on later. How many billions of dollars will the government throw towards the construction sector over the next few years? Nobody can be certain, but what we know for sure is that demand continues to steadily increase.
The World Steel Association forecasts a global rise in demand of 3.8% over 2020 totals. This figure is most likely based on planned construction and a normal increase in consumer retail production. Toss in supply chain woes, and you start flirting with disaster.
Basically, the world hasn’t seen such a rise in demand for steel since World War II. What’s worse is that economies are fragile, so when the supply chain works out the kinks and steel becomes easier to purchase, the price could drop wildly.
The bubble has caused major steel-producing countries like China to safeguard their supply. China out-supplies the world with steel almost 10-1 over the next largest exporter, which is India. The United States sits all the way down in fourth place, producing just 72 million tons. China produces over 1 billion tons for comparison’s sake.
