Navigating the Changing Steel Industry: Why Metal Fabricators Must Raise Their Voices to Stay Afloat

​You may not have had the chance to notice, given your busy schedule fulfilling customer orders in recent years, but the steel tariffs initiated back in March 2018 by the Trump administration are still very much in effect. Although President Joe Biden has introduced tariff-rate quota systems in place of tariffs on European and Japanese steel, tariffs continue to apply to most imported steel, with a particular focus on exports from China, the world's largest steel-producing nation.

Since the inception of these tariffs, steel prices have embarked on an exhilarating roller coaster ride, often swayed by unpredictable events. For instance, the price of hot-rolled steel coil soared to an all-time high of $1,955 per ton in early September 2021, propelled by the resurgence of the manufacturing sector after the pandemic and further buoyed by the Russia-Ukraine conflict in early 2022. While it has since moderated somewhat, it remains far from the $550 per ton levels witnessed in the late 2000s. (As of late August, Steel Market Update reported hot-rolled coil prices at $725 per ton.)

In light of these price fluctuations, many businesses are yearning for greater predictability, a desire to have their price quotes for fabrication work remain valid for more than just a fleeting moment. Even with the uptick in steel costs, numerous shops are simply seeking pricing stability to inject some tranquility into their typically tumultuous business operations.

Business has been brisk enough that many companies have refrained from fully passing on the elevated material costs to their customers. According to the Fabricators and Manufacturers Association's "Financial Ratios & Operational Benchmarking Survey," conducted late in 2022, metal fabricating firms reported that average direct material costs accounted for 39% of their sales, up from 34% the previous year. Moreover, they noted a decline in inventory turnover compared to the prior year, reflecting the uncertainties in global supply chains.

Meanwhile, the tariffs seem to have provided stability to the domestic steelmaking sector, which was deemed a national security concern as of 2018. U.S. Steel and Cleveland-Cliffs, both major U.S. steelmakers with traditional blast furnace operations, have consistently reported annual revenues near or above $20 billion over the past few years. Steel Dynamics and Nucor, two other prominent mills, have also experienced robust sales during this period.

However, this leaves metal fabricators contending with unpredictable steel price swings and higher-than-preferred steel costs. U.S. Steel has recently announced its intention to sell itself, with Cleveland-Cliffs expressing interest, even after U.S. Steel rejected its initial $7.3 billion buyout proposal. More potential suitors have entered the fray, and Cleveland-Cliffs shows no signs of backing down.

Now, envision a scenario in which Cleveland-Cliffs successfully acquires U.S. Steel, and the Federal Trade Commission gives the green light to the merger. This move would firmly establish them as the leading steel supplier to North American automotive manufacturers. (It's worth noting that U.S. Steel and Cleveland-Cliffs are the exclusive providers of iron ore in the U.S., which serves as the primary raw material for steel production.) Such a consolidation might have been unimaginable in recent decades, but in the context of global manufacturing competition, nothing seems beyond the realm of possibility.

What remains challenging to grasp, however, is how the domestic manufacturing sector will cope with the reshaping of the domestic steel industry. Do not mistake the absence of public outrage for acceptance of the current situation. Those closely following these developments recognize that a marriage between Cleveland-Cliffs and U.S. Steel could prove painful for steel consumers.

Scott Buehrer, President of B. Walter & Co., a metal fabricator in Wabash, Indiana, expressed his concerns to The Wall Street Journal in mid-August: "We already have a highly concentrated steel market. Competing with foreign companies that have access to significantly cheaper steel is a tough proposition."

At this juncture, those in the metal fabrication industry with the ability to influence policymakers in Washington, D.C., must reach out to their contacts and emphasize the need for relief. If federal trade officials are unwilling to open the country's metal markets to international sources, they must ensure the existence of a genuinely competitive market within the nation's borders. It's high time to extend a helping hand to these small businesses.

​Source: the fabricators (Reporting by Dan Davis)