Steel prices have seen relative calm for several years now. This has been the result of a fairly balanced market, with demand in parts of the global economy being off-set by some sluggishness in other areas.
In recent months, however, it has become apparent to steel watchers that the equilibrium is shifting towards inflationary pressures on pricing.
There are three primary reasons for this shift:
1. First, the US recovery continues to heat up. The US, particularly on the West Coast, is in the midst of a mini-boom in construction, with activity rising very considerably from recessionary lows. The US construction market has been recovering painfully slowly for some time, but in the past 12 months that recovery has accelerated considerably.
For the first time since the recession, construction levels have moved from adequate to strong on the West Coast. As such, the US has gone from a market desperate to export its steel to a more buoyant Western Canada, to a market that requires its West Coast production for domestic consumption.
2. Second, bearish predictions of the future of Asian economies have not come to pass. Steel pricing was moderated with the relative cooling of Asian economies, primarily China. This moderation was due in part to concerns over the extent of the cooling and whether Asia was set for a significant slowdown.
However, it now seems apparent that economic activity will continue at a healthy pace, and Asia’s enormous steel consumption will continue for some time, albeit off of recent frenzied consumption levels.
3. Third, the steel market in Canada is also about to be impacted by a dumping action, which has been brought by domestic steel mills. On June 13, 2014, the Canada Border Services Agency (CBSA) initiated investigations under the Special Import Measures Act respecting alleged injurious dumping and subsidizing of rebar originating in or exported from the People’s Republic of China, the Republic of Korea, and the Republic of Turkey.
The investigations follow a complaint filed by Alta Steel Inc. (Edmonton, Alberta), ArcelorMittal LCNA (Contrecoeur, Quebec), and Gerdau Longsteel North America (Whitby, Ontario). Written reasons have not yet been published to clarify the reasons behind the investigations.
A dumping action and resulting import tariffs are likely to have an impact on steel pricing and supply in Western Canada. Because of transport costs from central Canada and the US, B.C. and Alberta have always relied heavily on steel imports. There is no domestic steel production in B.C. at all, and Alberta’s Alta Steel only produces rebar on a limited basis.
The primary “domestic” sources of steel are therefore two US mills – Nucor Steel in Seattle and Cascade Steel in Oregon. Given the busy US west coast construction industry, it is very likely that supply and demand forces will result in increased in pricing from these mills. Therefore, both off shore and domestic pricing is likely to be impacted by the dumping action, to varying degrees.
That said, there seem to be three forces putting upwards pressure on steel pricing in the coming months. B.C. and Alberta are generally in the same steel market, and therefore the pressures will likely be similar in the two provinces.
How much of a change in pricing should be expected?
As always, it is nearly impossible to predict, but it can be said with confidence that over the balance of 2014 steel prices will rise rather than decline.
Norm Streu is president and COO of LMS Reinforcing Steel Group.