Cost Drivers for the Steel Industry

Since Q42020 the price of steel has risen to unprecedented rates. Even with the US steel industry fighting to keep tariffs in place, an ongoing rise in steel is eating away at profit margins.  Is relief in sight?  At this point in time relief is unlikely to come soon.

So what are the factors involved that are causing this dramatic increase in prices in the steel industry?

While there is an imbalance in supply and demand causing an increase in US steel prices, there are other factors to consider. Steel prices are connected to the global market for steel as other nations are experiencing similar challenges within the industry.

COVID-19 and Omicron have created a huge impact on the Steel industry price margin.

COVID19 precautions caused steel mills to reduce their workforces within given shifts and create distancing space between workers, which impacted an industry already reaching maximum capacity to fulfill orders.   This has impacted shipments and lead times for making materials available to Wire mills who turn steel rod into wire of various diameters and in turn, sell to distributors such as Western Steel & Wire.

The Omicron variant has impacted shipping costs which for a brief time were seeing a slight decline but now are climbing back up.

Shipment of steel is also a factor affecting supply and demand.  Politics, not only domestically but in foreign entities can pay a big factor in the cost of labor, fuel, and scheduling.   Timing of shipment can be a factor as well. For example, during holidays, shipments are in high demand and that can impact the availability and cost of steel shipments.

According to, 2022 will likely see some stabilization in international ship rates. However, right before the Lunar New Year (Feb 1, 2022) the rates would climb, and delays would be significant. This was due to widespread restocking by retailers, slowdowns in Asian operations due to the Lunar New Year festivities, along with reduced manpower due to COVID precautions.  However, as the year progresses, there is an expectation that as COVID precautions will lessen, and the spread of the disease will ease up, allowing an increase in staffing, resolving the manpower issue.

There also have been port congestion issues that should ease up as staffing ramps back up.

New players into the shipping market will also help expand and increase the Trans-Pacific shipments. Designing optimal transportation routes can help alleviate some of the shipping costs associated with the rising fuel costs.

While looking at foreign suppliers, many face the same obstacles as domestic suppliers, much of what is an issue due to the pandemic precautions. Foreign mills are also facing a lot of political nuances along with the pandemic challenges. Energy prices, particularly the high price of electricity in Europe, is now affecting European steel producers’ costs.  Electric arc furnace producers use more energy and serve many wire rod producers.

There have been other shutdowns due to cyberattacks (such as Stelco mill out of Hamilton, Ontario Canada) or because of union workers seeking better health packages or working conditions which have caused complete stop of production of steel output.

So, what is the outlook for reducing the rising cost of steel?

Forecasts from as well as many other analysts are predicting a down-slope in market pricing.  They predict that prices for Hot Rolled Coil (HRC) products such as pipe, sheet metal, will continue to decline through 2022. However, pricing for long products, such as wire, rebar will also decline in 2022 but at a later date, Mar/Apr timeframe.

Per, the chart below shows a world steel price cycle that moves from peaks to troughs every few years.   For example, peaks occurred for both HRC (hot rolled coil) and Rebar (reinforcing bar) in August 2011, April 2018, September 2021, with a predicted peak again in or around Q3 or Q4 in 2025.   The troughs occurred May 2009, February 2016 and June 2020, so the next pricing trough is expected to occur mid-2023.

What does this mean for Western Steel Wire Customers?

Western Steel Wire continues to negotiate with their suppliers to bring to their clients the lowest prices and best lead times.   We continue to watch market trends and forecasts, not only for steel itself but for other metals and metal finishes that have direct impact on pricing.  For example, we know the price of Zinc is on the rise.  Zinc, being a coating for galvanized wire, has increased around 37%.   This increase is due to declining inventories.  Shipments from Feb 28, 2022 forward will see the following increase, per London Metal Exchange:

Shipping from foreign suppliers remains an issue, and likely will for months ahead, causing delays in product availability and possible higher prices due to freight surcharges that keep escalating (see how shipping issues may improve as the year progresses above).

Western Steel Wire has both domestic and international wire mills as suppliers, and we are committed to bringing our customers the highest quality and lowest cost products, so we continue to seek to find the lowest price and best delivery times available for our customers through these volatile market conditions.  We are encouraged that most analysts believe there will begin to see a down-slope in pricing leading to another trough in mid-2023 but have yet to see it realized at this time.  Watch for updated pricing blogs as we begin to see a true shift downward.





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