U.S. manufacturers grapple with steel shortages, soaring prices

By Rajesh Kumar Singh
CHICAGO (Reuters) - An aerospace parts maker in California is struggling to source cold rolled steel, while an auto and appliance parts maker in Indiana cannot secure additional supplies of hot rolled steel from plants.
Both and other companies are hit by a new round of disruptions in the US steel industry. Steel is in short supply in the US and prices are rising. Unfulfilled orders for steel were last quarter at their highest level in five years, while inventories were near a 3-1 / 2-year low, according to the Census Bureau. The reference price for hot-rolled steel reached USD 1,176 / ton this month, its highest level in at least 13 years.
Rising prices are driving up costs and squeezing profits for steel-consuming manufacturers, sparking a new round of calls to end former President Donald Trump's steel tariffs.
"Our members have reported that they have never seen such chaos in the steel market," said Paul Nathanson, executive director of the Coalition of American Metal Manufacturers and Users.
The group, which represents more than 30,000 companies in manufacturing and downstream supply chains, called on President Joe Biden this month to end Trump's metal tariffs.
Domestic steel mills, which shut down furnaces last year amid fears of an ongoing pandemic-induced economic downturn, have been slow to ramp up production despite a recovery in demand for cars and trucks, household appliances and other steel products. Capacity utilization in steel mills - a measure of the full utilization of production capacity - has risen to 75% after falling to 56% in the second quarter of 2020, but is still well below 82% last February.
Steel deliveries have increased, but are still below the previous year's level.
A SOLID STEEL MARKET
Steel maker Steel Dynamics said last month it couldn't even get enough flat rolled sheet for its own internal operations.
"It's very frustrating," said Hale Foote, president of California's aerospace parts maker Scandic Springs. "I see great business ... but I have no supplies."
Scandic Springs is at risk of losing a $ 1 million annual contract as it cannot find a domestic supplier willing to supply 240,000 pounds of cold rolled steel.
Indiana-based Stone City Products, which supplies components to appliance and automotive companies, is also struggling to source 2 million tons of hot-rolled steel annually for a new project.
After the pandemic lows in the second quarter of 2020, when orders were down 50%, the company saw a dramatic turnaround. The order book is now 25% above pre-pandemic levels.
To keep up to date, the company runs its factories seven days a week and has increased its workforce by 40%. But steel that was delivered in eight weeks last year now takes 12-16 weeks. Mills do not accept requests for additional purchases.
"We have met many customer needs," said Stewart Rariden, company president.
HAPPY TO BREAK TOO
Domestic steel prices have risen more than 160% since last August, placing steel consumers in a dilemma - whether to absorb or pass on the increased costs.
"We'll be lucky if we break even at this price," said Stuart Speyer, president of Tennsco, Tennessee. Steel costs for the maker of lockers, bookcases, and cabinets have increased 98% in the past six months.
Whirlpool said last month that increased steel costs would save 150 basis points of its earnings this year. Agricultural machinery manufacturer AGCO and crane manufacturer Terex have announced price increases to offset material costs.
In February's "Flash" purchasing manager survey, IHS Markit's factory price index was the highest since 2011 and the price of finished products was the highest since 2008.
The rise in steel prices comes at a time when the expectation of additional fiscal stimulus and a faster adoption of vaccines is fueling fears of widespread inflationary pressures.
However, policymakers such as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen do not anticipate sustained and broad-based price hikes as US unemployment is still well above and more than pre-pandemic levels 18 million Americans receive some form of unemployment benefit.
AMERICAN VERSUS IMPORTED STEEL
Record prices are proving to be a gold mine for steel producers. American steelmaker stocks are up 65% since last August. An analysis by the rating agency Fitch shows that US steelmakers achieved a profit margin of 45% in January. Nucor expects the highest profit ever in the first quarter.
The steel industry and union groups last month urged Biden to maintain the steel tariffs, calling them "essential" to domestic industry. Steelmakers are facing their own higher costs after an increase in scrap and iron ore prices.
Steel prices in the US are 68% higher than world market prices and almost double those in China, even if prices in China and Europe are up over 80% from their pandemic lows.
The price gap is so large that even with a 25% tariff importing it would be cheaper than buying it in local mills. The United States imported 18% of its steel needs last year.
Logistical challenges such as a shortage of containers and a low supply overseas keep imports in check. However, some traders expect imports to pick up through June if the domestic market remains tight.
Uncertainty about the tariff outlook is one factor that has a grip on domestic steel production.
Angela Reed, an executive at Atlanta-based steel trader Reibus International, says an anticipated review of import restrictions will delay spikes in production and spikes in inventories, as curb easing is likely to lower domestic prices.
"(People) are trying to make sure they don't get stuck with the more expensive stuff," Reed said.
(Reporting by Rajesh Kumar Singh; Editing by Andrea Ricci)
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