Industry Voices: Surviving in a volatile steel marketplace

August 19, 2019 7:37 am

Metal fabricators need to be lean and adaptable with threat of “Steelmageddon” looming


[Editor’s Note: This guest contribution first appeared in the Readers’ Forum section of the August 2019 issue of The FABRICATOR.]

Those of us in manufacturing are all too familiar with cost pressure, but in today’s hypercompetitive global economy the squeeze is tighter and the stakes are higher than ever before. For companies doing business in a cutthroat global marketplace that moves at the speed of light, market events ripple through an industry in the blink of an eye, and even the smallest misstep or miscalculation can be catastrophic.

To exacerbate this volatility, market-shifting events that are beyond our control, like natural disasters and political chess moves, are occurring at a dizzying frequency. So how do businesses insulate themselves and stay ahead in a time of inevitable volatility? Low-cost manufacturing is a great place to start, but the market shows no mercy for mistakes perceived to be a result of corner-cutting.

To illustrate this point, let’s take a look at what’s happening in the steel industry.

The American steel sector has been particularly volatile since President Trump slapped tariffs on foreign metals shortly after taking office. The U.S. relies on steel imports to meet demand, so tariffs have a big impact on domestic prices. To make matters worse, foreign steel is made with iron ore from Brazil and Australia, where prices are up 45 percent this year because of supply problems.

Based on these factors, we’d expect to see domestic steel prices on a steep upward trajectory, but we’ve seen the exact opposite; prices have trended consistently downward for nearly a year. Analysts at Bank of America Merrill Lynch believe this shift to be the start of “Steelmageddon,” an industry purge caused by an oversupply of steel commodities that will last several years, slashing prices and eliminating inefficient producers.

So, who will remain standing when the dust settles from Steelmageddon? Merrill Lynch believes the upheaval will be treacherous but predicts some low-cost producers like Nucor and Steel Dynamics will emerge with better market share and healthier margins. As global raw material prices have increased and tariffs remain in place, recycled scrap metal has been readily available at a low cost for U.S. producers. Scrap metal prices also are susceptible to fluctuation, but aren’t nearly as vulnerable as foreign raw materials subject to the ever-changing global market.

What has become increasingly clear in light of what’s happening around us is something most industry insiders have known for some time, but feels more critical than ever: Manufacturing is the cornerstone of business, and every decision surrounding it is critical.

In a complex global environment, missteps are always costly, and often catastrophic. When mistakes do happen or we’re forced to endure market events beyond our control, companies built on lean, responsible, and adaptable manufacturing will make it out alive.

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