The shifting steelmaking landscape

The steel-making landscape could change dramatically in the coming months after U.S. Steel made an announcement basically putting itself up for sale. Metal fabricators should start to get more vocal about these potential changes because none of them seem to be in their favor in the long run. bereta/iStock/Getty Images Plus

You might not have noticed because you’ve been pretty busy meeting customer orders over the past couple of years, but the steel tariffs on imported steel levied in March 2018 by the Trump administration are still in effect. Sure, President Joe Biden has replaced tariffs on European and Japanese steel with tariff-rate quota systems, but for the most part tariffs still remain on most imported steel, particularly exports from the largest steelmaking country in the world, China.

Since the tariffs went into effect, steel prices have been on quite the roller coaster ride, obviously influenced by hard-to-predict events. The price for hot-rolled steel coil reached a record high of $1,955/ton in early September 2021, as the manufacturing economy came roaring back from the pandemic and remained somewhat elevated as Russia invaded Ukraine in early 2022. It has since come down, but it still remains nowhere near the $550/ton range seen in the late 2000s. (Steel Market Update reported hot-rolled coil prices at $725/ton in late August.)

All of these fluctuations have many companies wishing for more predictability, so that a price quote for fabricating work remains good for longer than the end of the business day. Even with the rise in steel prices, many shops are just looking for pricing consistency to lend some calm to what is normally a chaotic business model.

Business has been good enough that many have not passed down all of the elevated material costs to customers. According to the Fabricators and Manufacturers Association’s “Financial Ratios & Operational Benchmarking Survey” completed late in 2022, metal fabricating companies reported that average direct material costs represented 39% of sales, up from 34% the prior year. Additionally, they indicated that inventory turns were down when compared to the previous year, which was a reflection of the uncertainty of global supply chains.

Meanwhile, the tariffs appeared to have steadied the domestic steelmaking industry, which as of 2018 was considered a national security issue. Both U.S. Steel and Cleveland-Cliffs, two of the largest steelmakers in the U.S. and operators of traditional blast furnace plants, have reported annual revenues close to or above $20 billion for the past couple of years. Steel Dynamics and Nucor, two other large mills, have enjoyed robust sales as well over the same time period.

Of course, that leaves metal fabricators with wild steel price fluctuations and higher-than-desired steel prices. Now U.S. Steel has announced that it’s put itself up for sale, and Cleveland-Cliffs is one of the suitors, even after U.S. Steel rejected its $7.3 billion buyout proposal. More interested parties are in the mix as well, and Cleveland-Cliffs isn’t going to give up just yet.

Now, imagine if Cleveland-Cliffs did purchase U.S. Steel, and the Federal Trade Commission approved the deal. It overwhelmingly would become the No. 1 supplier of steel to North American automotive companies. (U.S. Steel and Cleveland-Cliffs also are the only suppliers of iron ore in the U.S. Iron ore is the feedstock for the blast furnaces that make steel.) To allow that sort of consolidation at one time would have been inconceivable in recent decades, but against the backdrop of global manufacturing competition, anything is possible.

What’s hard to fathom, however, is how the domestic manufacturing base can be expected to shoulder this restructuring of the domestic steel industry. Don’t mistake the lack of outrage as acceptance of what is going on. Those that are paying attention know that a Cleveland-Cliffs and U.S. Steel marriage could be painful for steel consumers.

“We already have a very concentrated market for steel,” Scott Buehrer, president of B. Walter & Co., a metal fabricator in Wabash, Ind., told The Wall Street Journal in mid-August. “It’s hard to compete with companies outside the U.S. who have access to much lower-priced steel.”

At this point, those in the metal fabricating industry with some ability to influence decision-makers in Washington, D.C., need to reach out to those connections and let them know that some sort of relief is needed. If federal trade officials won’t open this country’s metal markets to international sources, then they have to ensure that some sort of real competitive market environment exists within the country’s borders. It’s time to give these small businesses a break.