December 12, 2012

U.S. recovery puts pressure on steel prices

View from the Board | Norm Streu

Six years after the complete collapse of the United States housing market, a recovery is finally taking hold.

In a healthy economy, the U.S. has about 1.2 million new households a year.

From 2007-2011, it averaged only 570,000 a year. This year, analysts are expecting the number to recover substantially, and close in on the one million mark again.

This recovery, combined with the overall U.S. economic recovery, is having a profound effect on steel pricing, and is already causing supply and capacity issues with major mills supporting Western Canada.

As noted in previous columns, domestic mills have had an incredibly tough ride since the on-set of the recession.

They desperately need pricing to improve, so that they can make up for five years of poor returns.

The turnaround in U.S. construction creates just this opportunity, and you can bet that the mills will take full advantage of it.

Prices have already risen by 15-20 per cent since this summer, and mills have warned of further increases.

Mills have also already started putting their customers on notice that their production is near capacity and they are unable to fill new orders.

By doing this, mills ensure that the perception of scarcity of supply is confirmed, fueling further upward pricing pressure.

All of this will have an impact on local projects seeking to obtain LEED points for reinforcing steel meeting local requirements.

We have long warned that the LEED’s geographic limit for steel manufacturing should not be relied upon because it places an effective monopoly on one or two regional mills.

Now, with mills stating that they have reached their capacity for new orders, obtaining adequate supply from the local mills at all is becoming a major concern.

Projects relying exclusively on local steel run the risk of not having steel in the correct lengths and diameters for their projects, with potential impacts to their construction schedules.

The U.S. housing recovery is long overdue and will benefit Western Canada in countless ways.

However, purchasers of steel should be aware that this recovery is playing havoc on steel pricing and supply, and will continue to do so for some time to come.

Norm Streu is the president and chief operating officer of the LMS Reinforcing Steel Group. He is a former chair of the Vancouver Regional Construction Association and a member of the Journal of Commerce Editorial Advisory Board. Send comment or questions to editor@journalofcommerce.com.

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