Final Thoughts

Final Thoughts

Written by Michael Cowden

I was going to write something today about steel prices, lead times and the spreads between various products. There is a lot to write about there. And I’ll come back to it on another day.

I’m tapping the brakes on prices today to touch on something just as important and just as disruptive: persistent shortages of workers and parts. In short, stretched and nearly broken supply chains.

gearsSMU doesn’t collect data on that front. But we’ve heard from a lot of you anecdotally about the problem.

You know the story by now. Maybe you can find a truck. But you can’t find a driver. Or maybe you’ve managed to get a truck (and a driver) but you don’t have product to ship because you unexpectedly lost a crew to the omicron variant. Or maybe you still can’t get that part – whether it’s a chip, a resin or something else entirely.

SMU has been writing about prices a lot over the last year. We had to. Prices went to their highest point ever and have fallen abruptly since. We can debate all day whether HRC prices will go back to historical averages of around $600 per ton ($30 per cwt) or whether they might find a new, higher floor close to $1,000 per ton.

There are good arguments on both sides of that debate. Case in point: I was looking at the latest domestic versus foreign prices from SMU’s Brett Linton earlier today. And I was struck by how U.S. prices were plummeting even as prices in Europe were flattening out and those in Asia were rising modestly. Will U.S. prices find an equilibrium with prices overseas? Will we temporarily overshoot on the way down (as we did in 2020)? Or are U.S. prices about to become structurally lower because of so much new capacity? Your answers to those questions probably determine whether you’re in the $600-per-ton camp or the $1,000-per-ton one.

That’s an interesting debate. But it’s one you don’t have the luxury to engage in if you can’t manage to make a product and get it out the door to your customers.

I’ve read often over the last year about the potential for high prices to create demand destruction – whether in oil, steel or lumber. Can a shortage of workers do the same? In other words, underlying demand  (depending on the markets you serve) might be strong and backlogs long now. But how long is that demand willing to wait for the labor needed to meet it?

There seems to be a consensus that supply-chain issues and the labor shortage, like high prices, will prove transitory. People will come back to work as relief programs designed to blunt the impact of the pandemic are removed. Or they’ll need to go back to work as inflation drives up prices for basics like food and fuel. Or that automation means we won’t need so many truck drivers in the future.

This reminds me a little bit of the debate around carbon-free steel (which doesn’t really make sense because steel is an alloy of iron and carbon). Hydrogen-based steelmaking sounds great in theory. But can we make it work at scale in practice, and just how long will that take? It also reminds me of aluminum market dynamics. (Dark secret: I was once an aluminum reporter.) Affordable electricity – or the lack thereof – can make or break a smelter. We used to have more smelting capacity on the West Coast to feed the likes of Boeing. What happened? Well, among other things, tech companies were willing and able to pay more for electricity. And that trend, it turned out, was not transitory.

What about workers in this industry? Are they not available because they’re sitting on the couch at home? Are they unable to come to work because the unpredictability of the pandemic means they have to stay home to take care of children? Or are other industries willing to pay more and/or offering better benefits and working conditions?

The old cliché about the cure to high prices being high prices still applies. But does that old saying apply to people?

I don’t have a ready answer for that. We’re still in uncharted territory, just as we have been since the pandemic hit nearly two years ago.

By the way, I’m hoping to explore these subjects with speakers and attendees at the Tampa Steel Conference. It’s less than two weeks away. If you haven’t registered yet, it’s not too late. You can find out more about the program here.

By Michael Cowden,

Michael Cowden

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