US steel market bearish, bogged down by logistics, supply issues

Despite vastly improved availability of finished steel, the US flat-rolled steel market continues to see supply-chain snags due to production, shipment, labor and storage problems. A Feb. 15 panel at the 2022 Tampa Steel Conference in Florida discussed the impact of these converging issues on domestic and imported steel.

"What's clear is we're all paying more," said Tom Derry, CEO of the Institute of Supply Management. For much of last year, commodities like glass, aluminum and steel saw significant supply shortages, causing prices to rise across the board.

Derry reported that 54% of customers surveyed felt they had no choice but to accept price increases.

With backlogs of up to six-months supply across industries, Derry said every buyer of every commodity was on allocation, as aggregated demand rose above available capacity. This was only exacerbated by the lack of labor participation, which was at a historic low, according to ISM data.

He noted that organizations were adopting new inventory policies in order to protect themselves from supply-chain disruptions. As delays in supply shipments have been a top concern, companies have been increasing their safety stock.

As a result mainly of the rising cost of raw materials, the steel market is expecting mills to announce price increases for products like hot-rolled, cold-rolled and hot-dip galvanized coil, said Jose Gasca, managing director of Metrading International AG.

"Little by little, customers will see the cost of raw materials and freight going up," Gasca added.

Anton Posner, CEO of Mercury Resources, said the market was seeing "dozens of supply chain crises on a daily basis." Ships were waiting for weeks at multiple ports, of which some were seeing the highest level of volume than any other time in history.

He mentioned one major ship operator from Asia had published a notice saying they would be dumping Los Angeles as a discharge port due to the sheer amount of ships in their queue. This could affect steel coming in from Thailand, Vietnam and Taiwan, Posner noted.

Truck and container freight was seeing skyrocketing rates while facing a shortage of truck drivers. When asked when it would all end, Posner said "not anytime soon."

Doug Wray, commercial vice president at Ports America, reiterated reports of truckers struggling to keep up with deliveries in the face of the COVID-19 pandemic and labor shortages.

He said ports simply did not have space for steel. Particularly, the availability of inside space was low and causing the long queues at ports. "Looking at big ports in the gulf, everyone's pretty full," he said.

Due to labor shortages and the rising cost of raw materials and shipping the steel industry remains bearish as the market comes down from record high prices seen in 2021.

Still, Walter Kemmsies, managing director, economist and chief strategist for JLL's US Ports, Airports and Global Infrastructure Group, felt demand would get stronger going forward. According to his research, the market would see over the next four years strong demand from construction, automotive, and developing e-commerce sectors.