Steel Supply Disruptions Impact on Metal Fabrication in 2020-2021

When COVID-19 hit North America in 2020, we had no idea what to expect. Who knew we’d be stuck in lockdown after lockdown as vaccine manufacturers and governments worked tirelessly in a race against the deadly “variants of concern”. Something else we didn’t expect was how hard steel supply disruptions would challenge the metal fabrication industry in 2020, with prices continuing to soar into 2021.

With almost 30 years in the industry at Paramount Machinery, we have seen our fair share of volatility in the steel market - we are no strangers to drama. We saw it radically spike in 2004 and then again in 2008. As this pandemic played out and has started on the road to recovery, we have seen unprecedented prices and often long lead times for raw materials like steel, copper and iron ore.

Steel prices have as much as tripled. Hot-rolled coil steel rose from a low of USD$460 in 2020 to a record high of $1,540 a ton in May, tripling the 20-year average, according to CNN. The Fabricator reports this is 44% more than the previous high we saw in 2008. In April, The World Steel Association forecasted that steel demand will grow by 5.8% in 2021, after a 0.2% decline in 2020. It could reach 1.74 billion mt and continue to grow in 2022.

How did we get here?

CNN’s Hanna Ziady called it the “perfect storm”. The world faced multiple supply chain crises in the past year. From COVID-19 outbreaks disrupting ports, to the Suez Canal blockage and shipping container shortages, extreme weather, a pipeline cyber attack, and more – all this contributed to rising costs for raw materials like lumber and steel.

Factories shut down or slowed production early in the pandemic and are now struggling to meet demand fueled by government stimulus and stir-crazy consumers with inflated savings after months shuttered indoors.

Demand is outpacing supply most prominently in the auto and construction industries. Consumers are more than ever seeking new cars and home renovations, and new construction is booming. It’s no wonder steelmakers can’t keep up. At the same time, prices – and fabricators’ blood pressure - keep rising.

How are metal fabricators impacted?

Steel supply disruption is the number one challenge metal fabricators are facing this year.

While some are tackling increased lead times, our customers are not finding this is jeopardizing their operations in a critical way. The biggest issue is the steep and unpredictable price increases cutting into the bottom line and inflating costs for the end-user.

Is there a light at the end of the tunnel?

In 2020 and 2021, The Fabricator has asked how high prices would rise and when they would fall several times:

• In November, they asked if steel prices have peaked for the year (they hadn’t).
• In January, they asked if steel prices would hit $1,000/ton in 2021 (they did).
• In February, they asked if steel price increases were losing steam (they weren’t).
• In March, they stopped asking and reported on the continued record highs.

Then in May, they said what we’ve been expecting, but dreading – we might not see relief until 2022. While we’re seeing new capacity and steelmaker expansions adding to the supply this year, they predict it’s not enough to affect prices until late 2021 or even 2022.

Other experts in the industry say steel prices might take at least two years to cool down, considering the demand.

While we’re all eager to get back to pre-pandemic steel prices and lead times, we’re cautiously optimistic about the timelines. As we know this year has been one of more questions than answers, we are crossing our fingers that 2021 won’t see any further acts of God and the storm starts to clear.