Steel Prices: How we got here and what could happen

[Ohio Mike]

Just took a small pickup load of junk to my local yard today July 9th 2021. Price was 10 cents a pound for sheet iron, 27 cents a pound for electric motors.

 

[Ox]

I would appreciate it if you would strip my name from your quote.

I linked it.
I didn't write it.


Just back out the part that says

=Ox;3779959


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Think Snow Eh!
Ox

 

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Think Snow Eh!
Ox

I have been tooling up this company for the last 35 years, the name has changed, but I'm still on speed dial.

 

[Trueturning]

Lumber and steel are victims of overreaction and speculation.

Supplies are down throughout the supply chain, as the industries were nearly shut-down during much of 2020.

The economy is now making the typical comeback after a slow-down, and combined with the artificial boost of government stimulus checks, shortages in key industries were bound to happen.

But, just like with lumber futures, steel prices will come back down to more “normal” levels over the next 6 months to a year.

Why?

Because the US and world economies are doing OK, but they are not actually booming. And it won’t take long for suppliers of everything to get ramped back up, and fulfill the demand pipeline.

Once lumber and steel start free-falling in price, that could be as interesting as the recent climbs.

High steel prices suck for my shop because the products we make are sold at somewhat fixed prices, due to stiff competition and expectations of demanding customers.

Our main product starts as a 60-pound chunk of 2-3/8” round 4140HT, so every 10 cents per pound adds $6 of cost to each part.

I’ve told all the customers we will hold prices as long as we can, but if steel prices don’t come back down to earth soon, we will be forced to increase prices.

We have been able to negotiate with multiple steel service centers, and place blanket orders, to save a few pennies per pound.

Never a dull moment in a small manufacturing business...

ToolCat

I noticed many large companies have been using this time to do extensive remodels of their facilities . It involves construction materials. During this time there were a lot of homes put on hold as far as construction is concerned.

Property values and prices for existing homes has gone much higher. The tax man gets his share whatever the case during rise and fall projects and economy.

 

[Trueturning]

I bet if you did a poll of that here, percentages in the very high 90s' would agree.

I have to be a contrarian. I give them there 60 or 90 days but price with huge margins and get the work because I know 99.9% of all the other little small time guys like us will pass.

The weenie in treasury who feels like a hero saving his firm 0,4% in their cost of capital for the extra 30 days he pummelled me for has no idea they paid 12% more for the privileged of doing so

I think you are on target here. I am not surprised. You seem open a lot to offshore manufacturing quite a bit though which might be a misunderstanding of your views. Sometimes a place is happy with how their work is going and feel that it does not effect them. (Offshoring insanity)

It may even be viewed as a strength and then again some shops rework, repair, and add in features as needed from items shipped from overseas.

Why ship anything back to be updated or to fix a oversight or a missing feature? It is better to have some shop put in a missing or newly added feature no need to use a new cones or arrange to be part of what is shipped in them.

Setting up such jobs require time and effort and no one wants to screw that kind of work / rework up.

 

[Ohio Mike]

I would appreciate it if you would strip my name from your quote.

I linked it.
I didn't write it.


Just back out the part that says

=Ox;3779959


---------------------

Think Snow Eh!
Ox

Sorry about that, taken care of

 

[CITIZEN F16]

Market update from the "scrappers"----haul ass and bring in as much as you can. Scrap prices--downward trend next two weeks.

I have a good bunch of copper, but I wasn't going to take it till the other barrels and buckets were full. It was at a little over $3 a pound last I checked. A couple neighbors were going to just feed their old pipes and drywall slowly into the trash from helping each other do a couple repipes. Being the nice guy I am I let them use my rarely used trailer as a trash can to get rid of it all at once. Dumping the drywall cost me $20. The copper is in a barrel in the shop, has to be about 150# in there. I am pretty sure they have no idea what that copper scrap is worth. I probably should take them out for a steak dinner.

 

[Mcgyver]

I think you are on target here. I am not surprised. You seem open a lot to offshore manufacturing quite a bit though which might be a misunderstanding of your views.
.

There is about zero about Toronto that gotten better over the last 30 years, and tons that have gone to shit. However no one called me up asking what they should do then or now. See the point? I'm not for or against how the world is now as I didn't cause this shit and can't change it (other than manufacturing jobs I've created). There is no way to go back so its waste of energy thinking so or fretting about it. Worse still would misguided policies that wouldn't work and would have unintended consequences.

imo it needs to be approached with an economist's mind as that is the only way it to intelligently consider it imo - rationally and viewing things as a whole vs special interests or extrapolating back stoop paradigms. A discussion around macro economics in terms of what is good for your or my shop is misguided. Massive levels of protectionism in huge swaths of the economy causing a surge in manufacturing would be a huge boon for machining business of course. But its a waste of breath because its not going to get traction as its not what's best for the nation's economy. Its not a serious idea because of the costs (a politician tells you the benefits, an economist tells you the benefits and the costs!).

So I don't know what "open" means. I wasn't consulted on the shift of manufacturing from NA to China. All I can do is try and understand what is and has happened and to try to understand how pulling on various levers might alter things. I don't look for BS culprits or fairy tale fantasy endings.

Most of my views are heavily influenced by well accepted economic principles. Such as, prices including wages are ultimately set by markets, competition will push business to lower its cost base ultimately benefiting the consumer, that two nations trading will likely be better for it, and so on. If you don't deeply understand basics like that and instead form views from angst, prejudice or follow the dogma of whatever political shyster has hoodwinked you, you won't understand my views.

The notion of bringing manufacturing back through protectionism is an idea formed out of angst and ignorance. Its political, and it feels good to many who pine for the past but don't have much economics - a perfect target for a politician! Its rooted in a false premise: that the low skill, high wage jobs unions, created and drove upward for a couple of generations after the war, not only weren't an enigma but that somehow can be recaptured. Manufacturing leaving was the market correcting for this - remember? Ultimately prices, included labour, are set by the market. Like leaping of a cliff, you were never really flying, just felt like it for a bit. What does let you make a higher wage than someone on the other side of the world is higher productivity - realize that and your mind should open to a different set of ideas on what should be done.

What would make either one of our countries better is higher GDP per capital and a balance of payment mix that didn't rely so heavily on foreign investment. Manufacturing and exporting is a way to achieve that - but only if productivity here is higher than there. Of course the other guy is not standing still so a continued advantage depends on innovation. These are things America as done very well at in the past but has some trouble with now. How do you achieve greater productivity through continued innovation? Lots of ways I think, but if you're a partisan rather than an independent thinker its going to be tough as it requires slaughtering some of the sacred cows.

 

[lucky7]

^^^ A simple ‘like this post’ isn’t enough. Well said Sir. Including comments about Toronto. I left in 1993 and on visits back am alternately surprised by improvements (yes, somethings are better) and things that have gone to crap. Overall, living in the west is better even if dogma to rationality ratio is worse here…

Btw, have enjoyed your website.

L7

 

[Ox]

Website?


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Think Snow Eh!
Ox

 

[Mcgyver]

just my hobby site, not 100% complete yet

 

[turnworks]

Was at a local metal supplier couple weeks ago just for some sheet steel to finish up a project. Small order just 65# and the price was over 4 dollars a pound so I said thanks but no thanks and walked out.

In the parking lot I ran into the owner and he was in a chatty mood so we killed 30 mins catching up. I’ve known him for many years.

He let me know that he finally has made it and that he can finally retire any day he wants now. Went on to say that his sales are down roughly 20% but profit is up 60% and was able to drop two guys.

He can now take much bigger risks and experiment more on pricing because he reached his goal.

I’m now in search for a supplier who is still hungry. Don’t blame him one bit it’s his place after all. I’m not sure all the price increases are from supply and demand or covid. Some just charge whatever they want whenever they want and call it a day. Kinda hard to tell the difference.

 

[Ries]

Mcgyver talks about "productivity"-

And thats an interesting thing to consider in terms of steel and aluminum.

As I have mentioned before, my dad worked summers in the US Steel plant in Gary Indiana in the late 40s.
And there were 40,000 employees there then.
Now, the same mill produces a larger yearly tonnage, with about 4000 employees- and its considered a pretty dated mill, by current US standards.
In something like steelmaking, the mere hourly cost of labor is not a huge factor.
There are mills that export to the USA that were built in the sixties, and have hideous "productivity" figures in terms of number of employees, and labor as a percentage of cost- in China, and in Eastern Europe, in particular.

The Chinese, the Indians, the Germans, even the Russians, have all built or bought and rebuilt steel mills in the USA in the last 10-15 years. They spent tens of billions to do this.
The reasons being, in Steel, profit is based on total cost to market, as well as the price the market is willing to pay- and the USA is still a very viable place to build and operate modern steel mills.

The germans and the brazilians had a joint venture a few years ago to do the primary steelmaking, and ingot rolling (real ingots, which weighed tons) in low cost Brazil, then ship it to the USA, and do final rolling here.
It didnt work out. The logistics complications, for-ex variablity, and Brazilian political and infrastructure frictions mean that plant is still in business, in the Southern US, but its rolling steel that was made in the USA.

In steel mills these days, if you can swing the financing to have state of the art equipment, wages are a small enough part of the equation to be pretty irrelevant. And the economic trustworthyness of the USA, along with functioning infrastructure, roads, ports, and a legal and financial system, mean its better to make steel here, and sell it here.

We will always import a certain percentage- bottom of the barrel stuff, and propriatary alloys, for example. And given the general low amount of infrastructure construction here, as compared to say, China, its probably not worth a steel companies while to have a mill in the US. rolling gigantic structural members best suited to bridges, or to have too many mills rolling railroad rail.

But the numbers, and the continuing presence of mills, seem to indicate that neither our environmental laws, nor our wages, nor our real estate prices and taxes, are a hindrance to making a profit making somewhere in the neighborhood of 70 million to 100 million tons of steel in the US every year.

Same thing applies to auto parts manufacturing- the Chinese, alone, have spent billions in the last ten years building factories in the USA to supply car plants here.

 

[cnctoolcat]

or to have too many mills rolling railroad rail.

The Class 1 railroads in North America love Nippon Steel rail, and use a lot of it. I would imagine Nippon has a plant in the U.S. now?

Those pesky Japanese know a thing or two about making steel....

 

[Ox]

Did they find some recipe that doesn't have as much thermal expansion?


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Think Snow Eh!
Ox

 

[EmGo]

Did they find some recipe that doesn't have as much thermal expansion?

Continuous rail is stretched when it's laid, so its length is in the middle of the expected temperature range. If the weather gets too hot or cold (hot is worse) then all traffic is slowed down. I spose at some point traffic would be entirely shut down, but I think that's somewhere around 120*.

Shorter rail has fishplates and expansion joints.

 

[Ox]

OK, I'll bite....

How doo you stretch rail?
It's not even in a straight line.

???


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Think Snow Eh!
Ox

 

[cnctoolcat]

Ox,

The “ribbon” rail is heated to stretch as it is installed.

Continuous welded rail has always had potential issues with heat expansion, and even contraction in extreme cold weather.

The railroads have to be diligent!

 

[EmGo]

OK, I'll bite....

How doo you stretch rail?
It's not even in a straight line.

There's a bunch of interesting videos on youtube about tracklaying. It's surprising how flexible rail is. Anyway, I think that the anchors hold it pretty stable in the cross-track direction but it can move in the longitudinal direction, so there's at least two ways - the flamethrower cars like toolcat mentioned that look like flat cars with about a hundred flames impinging on the rails, and a hydraulic puller thing that grabs the ends of two rails and sucks them together. They'll butt the ends flush, then grind a known distance then pull them together and weld.

Some pretty trick stuff ... the German one is of course the most fun to watch but probably doesn't work any better than the more manual methods. And the Chinese ones, they do all this high-tech ballastless 200 mph stuff, then use 100 guys to set the rail down on the ties. Full employment

 

[kustomizer]

About 5 years ago Wonder Woman and I were on I-5 just north of Bakersfield Ca when we caught up to a train hauling rail, I estemate each rail at 1/4 mile long. They were in stacked with rr ties between the layers of rails with blocks between around 1 foot, 6 layers high. We followed for a bit amazed to see the load snaking around gental curves yet not walking of the rail rars, I forget how many cars the rails bridged but it was pretty cool to see. I thought it must have been something made for Gov Browns bullet train.

Quote Originally Posted by Ox View Post
And then you have no buying power with anyone either.

I have some special 6061 extrusions for one customer, I buy the material 2000 lbs at a time and have the supplier put it on a seperate bill from the rest of my order which I pass on th the customer the day we get it then we bill them for the machining as we deliver the parts. It helps out with "buying power" as we get a bit better deal on the rest of the material we need for our projects. The special extrusion lasts us about 6 months, there are 2 of them and we have the orders alternated so we buy aluminum about every 3 months if we keep track of it, the customer owned material helps us save about 50 cents a pound on ours, normally another 1000 to 3000 lbs