3 Hidden Factors That Influenced Steel Price Trends In 2016
February 24, 2017
Purchasing managers at OEMs may not always have time to examine the materials market on a higher level because much of their work depends on making day-to-day buying decisions.
However, keeping a tab on steel price trends helps you develop a smarter purchasing strategy. If you knew steel prices were likely to rise over the next year, what changes would you make today to protect your procurement budget?
To make predictions about the future, you need to analyze the past. Learn more about three hidden factors that influenced steel price trends last year and how these trends are expected to play out in 2017.
1. Trade Actions
According to an article in Market Realist, many U.S. steel companies have won battles against what they claimed were unfairly traded steel products. Most notably, companies like U.S. Steel Corporation, Nucor and AK Steel have benefitted from the wins.
New anti-dumping duties were implemented on the following steel product categories:
- Hot-rolled steel products
- Cold-rolled steel products
- Corrosion-resistant steel products
As many metal manufacturing suppliers and OEMs may have noticed, steel prices immediately went up as a result of these trade actions. This trend is expected to persist into the next year, so keep an eye open for new trade actions in 2017.
2. Demand-Supply Issues
In another trend this past year, steel buyers increasingly de-stocked their inventories. Due to trade cases, steel buyers were forced to make a shift: purchasing steel only from domestic steel mills.
In most situations, steel mills distribute to distributors, and distributors sell to suppliers. After all, a mill may have minimum purchasing requirements of 250 tons of steel. Few suppliers want to purchase 13 trucks full of a material at once. So, suppliers turn to distributors to purchase the quantities of steel they need.
As distributors let their inventory shrink to small levels, the reaction to the market is much quicker when mills increase their prices. Distributors don’t have the option to increase their costs gradually because they must purchase steel at the mill’s new price right away in order to meet suppliers’ demand.
In all likelihood, distributors will continue to keep small stock levels next year. So, market reactions to price rises will be swift.
3. Strengthening Economy
Raw material prices are very closely linked with the strength of the economy. For example, more metal is needed when the American consumer is buying washing machines, toasters and coffee pots.
Even more so than the consumer market, the industrial economy impacts steel prices. A toaster only has so much steel in it. But capital expenditures on machines and infrastructure require millions of pounds of steel.
Since the economy has improved over the past year, raw material prices have risen, allowing steel mills to raise steel prices with very little resistance.
Experts anticipate that the raw material market will strengthen during the next two years, further contributing to rising steel prices.
Once you have a better understanding of where steel price trends have been and where they’re going, you’re able to put price changes in context. In addition, having the right information allows you to plan ahead and mitigate the impact of rising steel prices before they become a major problem at your company.
Make sure you stay informed about metal manufacturing trends by following industry blogs and publications such as APICS Magazine, American Metal Market and the Miller Fabrication Solutions blog. These resources provide expert insights that may be helpful in guiding your purchasing strategy.