Will the cost of the hot rolled trend go down in 2015? Maybe, but don’t bet the ranch.
Producers may look to separate cost from selling price, but transportation costs are increasing.
Something we and all our steel fabricating customers always keep an eye on the trend of steel prices. For the steel fabricators, estimating jobs always carries the risk that steel will increase, cutting into their profits. The Steel Supply Company provides estimates and quotes usually on material that is already in our stock. We manufacturer consistent products such as anchor bolts, turnbuckle rods, shims, masonry anchors, slotted channel and rod anchors. For that reason, we can buy steel well in advance and manufacture from set costs.
This difference enables us to be in the opposite position of the steel fabricator. If we have inventory which was purchased at a higher cost and then steel prices drop, the value of our inventory drops also, eating into profits.
Even though we are on opposite sides of the equation, we are in the same position. When we buy steel or the fabricator commits to a price by submitting a bid, we making a gamble. With present world conditions the gamble is getting even more complex.
China’s economy is slowing down, and the Chinese demand for scrap is decreasing in connection with this slowdown. This might prove to be the biggest single factor controlling prices in the U.S. and most likely worldwide. Alternately, the U.S. market is growing stronger. Even with the power the U.S. market provides, the recyclers we’ve spoken to say the prices of scrap they sell have gone down recently. With China’s demand suspended, prices are expected to fall further as surplus inventories of scrap build up.
The problem for The Steel Supply Company and domestic steel fabricators is that none of us buy scrap. The fabricators buy I-beams, angles, channel and late. The Steel Supply Company buys round bar for anchor bolts, flat bar for slotted steel shims, coiled sheet metal and coiled wire. All finished products. The U.S. mills are running at higher capacity than they have since the recession began. While they might be buying scrap at lower prices than before, there is no incentive to lower the prices of any other products if rolling schedules are sold prior to production. As one domestic steel producer explained, “Based on market demand we may seek to de-couple scrap prices from selling prices.”
With that being the case, the price for different shapes can be moving in opposite directions all based on demand.
Another factor presenting problems on the cost of steel is transportation. Railroads have been reasonably consistent, but trucking is another story. The pool of available truck drivers and flatbeds seems to have been depleted during the recession and has not rebounded along with the economy. The steel producers are finding it increasingly difficult to place loads, especially if the load terminates in an area where it is hard for the trucker to get a return load, such as the New England area. In order to service these areas, the mills and distributors as of late have had to accept significantly higher transportation rates than in the past.
In short, for the near future in the steel fabricating business, it’s a seller’s market.