The US steel long product market is expected to continue trending mostly strong for the rest of this year, and while there are concerns that could trip up the market’s momentum, the speakers at SteelOrbis’ 13th Annual Rebar & Wire Rod conference, held virtually again this year due to the Covid-19 pandemic, are convinced most signs are pointing up.
Kicking off the event with a keynote presentation focusing on the US construction outlook, Ken Simonson, Chief Economist for the Associated General Contractors of America (AGC), shared trends in employment and spending that are more positive than negative. While both residential and nonresidential construction have recovered from significant drops in employment since April 2020, residential construction employment alone has returned to pre-pandemic levels. Additionally, while a survey conducted by the AGC showed that most contractors expect to increase employment levels this year, the vast majority also say it will become harder to hire construction workers.
As for construction spending, Simonson discussed the diverging trends within the construction sector. Private residential construction spending increased by 24 percent from Jan-Nov 2021 (compared to the same period in 2020), but private nonresidential and public construction spending decreased. Education, office, and lodging construction saw the largest dips, while commercial and manufacturing sectors saw increased construction spending.
However, it is not only demand that is driving up construction spending levels—construction costs have also increased dramatically, especially steel products, which increased 139 percent from April 2020 to December 2021. And while the infrastructure bill signed by President Biden last year is set to increase demand even more, Simonson said that funds will take time to distribute and award to projects, and most construction firms won’t start seeing the fruits of the bill until 2023.
Following the presentation, Simonson joined a panel that also included Philip Bell, President of the Steel Manufacturers Association (SMA), and Chris Casey, Executive Director of the Independent Steel Alliance (ISA). The panel discussion started with a few slides from Bell, who noted that US steel production’s heavy reliance on EAF technology has helped the country to be one of the most carbon efficient steel producers in the world, which Bell said would be “increasingly important” as the Biden administration starts to use climate policy to direct steel trade policy in the future.
Bell noted that while the US steel industry has fully recovered from the pandemic, imports are continuing to gain market share. While Bell said there “will always be a need for fairly-traded, environmentally-friendly steel imports in our economy,” due to strong demand fundamentals, it’s “a concern” when import market share goes beyond the 25 percent range that is considered normal. Bell also touched on continuing global excess steel capacity, notably from China, which is expected to exceed 1 billion metric tons of steel production in 2021-2022. This is significant, Bell noted, as many new import deals between the US and other countries are starting to take carbon emissions into account—such deals will help push the least carbon-efficient steelmaking markets out of the US steel market.
As the moderated panel got underway, the panelists first discussed infrastructure, with everyone agreeing that actual construction projects funded by the new infrastructure bill will not be seen this year due to appropriations procedures and other processes that must take place before funds are released. Because the bill-funded projects will be bound by “Buy America” regulations, Casey said that independent fabricators will have to decide on their own how to strategize purchasing decisions between domestic material and imports, as there’s no “one-size-fits-all” customer/project base among independent fabricators.
Moving onto a discussion of capacity, Casey expanded on Bell’s earlier slide about new EAF capacity coming online in the US, but noted that for long products specifically, the new supply will be almost entirely from two major mills who have extensive downstream operations, which means independent fabricators will be competing with their own suppliers, and they could be “shut out” of supply by the mill or their downstream operations.
In a discussion on trade policy, Casey said any impact from the US-EU tariff-rate quota deal is unlikely to be seen in 2022, due to uncertainty on the details and exclusions of the deal, and European steelmakers facing their own operational issues. Overall, Casey said “consistency of supply” is the main concern of independent fabricators, which is why import orders have been erratic over the last year. The Section 232 tariffs have contributed much to that inconsistency, and while Bell pointed out that President Biden could eliminate the tariffs with “the stroke of a pen,” he chose not to for political reasons. However, Bell pointed out that tariffs can’t last forever, and the SMA supports the new tariff-rate quota deals that are being signed with individual countries and regions.
To conclude the panel, the discussion shifted to the Covid-19 pandemic and how the US steel industry fared in the past two years. Bell pointed out all the ways in which US steel producers have led the way with safety and health initiatives, which will serve them if and when a similar crisis emerges in the future. Casey said the challenge of labor in the pandemic—attracting and retaining workers—has not completely abated, as industrial companies such as steel mills and fabricators are now competing with entirely different industries that offer similar high pay and safer working conditions, such as Amazon distribution. Simonson also discussed how construction firms in general are adapting to labor shortages, such as doing jobs with fewer workers onsite through pre-fabrication processes. Simonson said he has confidence in the US construction industry to continue thriving, but 2022 will still be a “challenging year.”