Will escalating metals prices start to wipe out fab shops?

Without a break in escalating metals prices, some metal fabricating companies might not be able to stay in business. Getty Images

It stings when you’re told that you don’t matter.

I imagine that’s the way metal fabricators feel right now as they face unprecedented metals price inflation and even availability in some areas. Stories are emerging of fabricators hoarding material, grabbing as much as they can at a certain price because what goes up seemingly keeps going up in today’s economic environment. And do you think anyone cares? Apparently not.

President Joe Biden is showing no interest in jettisoning the Section 232 tariffs that went into effect in May 2018. President Donald Trump imposed the duties on steel and aluminum imports after a Department of Commerce investigation found that international metal manufacturers threatened the viability of domestic aluminum and steel manufacturers, which was then deemed a threat to national security. Since then U. S. Steel Corp. has enjoyed a couple of profitable quarters after a string of five straight quarterly losses, and Cleveland-Cliffs, the largest iron-ore pellet producer in North America, completed its $1.4 billion purchase of ArcelorMittal USA, making the company the largest flat-rolled steel producer in North America. Both companies seemingly have taken the steps necessary to get their business affairs in order so that they can better compete in the international marketplace. And don’t worry about the electric arc furnace (EAF) guys because they are just peachy; for example, Nucor announced in April that it turned a profit of $942.4 million in the first three months of 2021.

With no real possibility that the tariffs will be lifted to provide some pricing relief for consumers of aluminum and steel, the steelmakers aren’t in any rush to bolster supply. In a June 10 Wall Street Journal article, reporter Bob Tita noted that U. S. Steel and Cleveland-Cliffs are choosing to keep old mills closed because both companies deem them too expensive and inefficient to open up, especially when compared to the efficient operations of their competitors relying on EAF technology. Tita noted that both companies are keeping about 7 million tons of production capacity out of service, about a tenth of domestic consumption in 2019, according to Metal Strategies Inc., an industry consulting firm. Additionally, the Steel Market Update team suggests that new capacity from Steel Dynamics, North Star BlueScope, and Nucor is getting pushed back.

You’d better get used to aluminum and steel prices where they are. You aren’t going to get your Christmas wish for reduced metals prices.

The scary part of this scenario has yet to play out. Even if the Section 232 tariffs were to be eliminated, the impact of imported metals might not be what most anticipate. The Steel Market Update team explains that Russia is now taxing metals exports and China is getting serious about possibly reducing its bloated steelmaking capacity. Meanwhile, the new domestic steelmaking capacity obviously will help in 2022, but can metal fabricators hang on that long?

Metal fabricators and manufacturers have rushed to purchase and install automation as much as possible over the last 15 or so months. (One representative for a major machine tool builder serving the metal fabricating sector said that 80% of all orders have some type of automation attached.) In many instances, this buys them capacity and some labor savings, but that alone is not enough to offset the tremendous rise in material costs.

The same international market that is a threat to U.S. metals manufacturers is also a threat to metal consumers. In fact, these companies hardly have the financial wherewithal that the publicly traded aluminum- and steelmakers do. Large OEM customers can shift their supply chain strategies quickly to foreign sources, say in Mexico or the Far East, to save money in the face of more expensive quotes from U.S. metal fabricators. They’ve done it in the past, and they’ll do it again. The reshoring trend might be a short-lived tale.

With Congress not paying attention and metals manufacturers not really concerned about their own customer base, metal fabricators are left to their own devices to call out this increasingly intolerable situation. Maybe a slew of semitrucks hauling flatbeds and box trucks filled with parts needs to roll right onto 1600 Pennsylvania Ave. NW in front of the White House or First Street SE in front of the U.S. Capitol and just camp there for a few hours. It certainly would grab the attention of those inside the Beltway who normally don’t think of the world outside of Washington, D.C.

The Coalition of American Metal Manufacturers and Users estimates that the U.S. has at least 6 million people employed by steel- and aluminum-consuming companies. That’s a huge segment of the economy that deserves to be recognized—and valued.