Ace Steel Metal Supplier The New World of Steel

The New World of Steel

“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger, but recognize the opportunity.” – John F. Kennedy

Ace Steel Supply has been telling customers about this for months; now it is happening.

Well before President Trump’s unofficial statements on March 8th, shortages of steel and aluminum were already showing up in the markets. Both foreign mills ceased taking orders in early February and domestic mills are limiting the quantities of orders they’re accepting.  Even orders going to top dealers went unconfirmed and unfilled. Foreign mills have entered the market in just the past few days, but only with customers accepting the full impact of the 232.

March 23rd is the big day.

We know the new Section 232 tariffs on steel and aluminum are supposed to go into effect March 23rd.  The Department of Commerce began accepting applications for exclusions on March 19th. We have yet to see any official documents or rules. We don’t know whether there will be carve-outs, exclusions or limitations. True to form, Trump is using the shock-and-awe approach to apply leverage as needed, particularly in renegotiating NAFTA. There is a lot of free floating speculation, including talk of tariff retaliation and foreign-owned mills being built in the US as a workaround.

Pricing ran up 25% in the 6 weeks before Trump’s announcement. 

We have seen prices rise substantially and FAST over the past quarter. What happens when prices take another leg up?  We expect the domestic mills to keep running up the prices for as long as they can, and the foreign mills will mirror them. We believe foreign and domestic prices will be very closely matched. The trend is up right now and we don’t know where the top is. Prices on foreign galvanized for example are up more than $20 cwt over what they were with steel arriving before the tariff.

The US imports roughly 1/3 of its steel and aluminum.

Domestic mills are at 80% of capacity, and a few mills are being reopened, but the US is a long way from pre-NAFTA productivity levels.  Over the past 24 years, mills were not just mothballed, but taken apart and shipped elsewhere. The Chinese have purchased a lot of industrial and agricultural real estate in the US, too. We’ve lost some 50,000 factories and 686,700 manufacturing jobs — a lot of manufacturing capacity left us.

The Supply Squeeze.

There isn’t enough production of the raw materials that go into the furnaces, either. Scrap and slab supplies are drying up. The US exported a lot of scrap last year — some 14 million metric tons. A lot of metal categories are not well served by domestic mills, for example: tinplate steel, thin-gauge aluminum, electrical steel, wire rod and some line pipe grade/size combinations. The foreign mills are capitalizing on all this uncertainty by canceling orders and sitting on inventory while domestic pricing goes higher. If they take orders at all, they are forcing customers to pay duties before fulfilling current orders.

We’re already well past “wait-and-see”.

We have been doing everything we could think of to educate our customers, so they could get ahead of the trend: blogs, email blasts, newsletters, videos and even a phone-in conference. Some are simply in denial. Some have decided to stand pat, and a few are sitting on or buying up inventory while they can, which is still short-term thinking.  Metals industry analysts predict many US downstream users may be shut out.

We’re already hearing some customers denying price run-ups from other vendors. Attempts to psyche dealers into price cutting are irrelevant. No dealer will sell for less than they paid. Low price metals suppliers will be removed from the picture altogether.

Some fabricators swear that their clients won’t tolerate higher prices. The market — supply and demand — determines pricing. The savvy businesspeople are already charging enough to cover rising replacement costs. All inventory is worth more today than yesterday.

We understand the normalcy bias. The thing is, we’ve been in the steel business for a long time. We’ve seen cycles like this, and they’re always hard. This one could last several years. Higher prices and shortages will be a fact for the next few months, but who really know how long the shortages could last.  It will come down to availability.

Ace Steel Supply offers the logical, long-term alternative: 

Use our strength for your stability. Ace Steel Supply offers a variety of custom programs to provide stability in inventory and pricing. Contract pricing. Price averaging. Managed inventory. Bulk purchasing. The tighter supplies are, the more closely guarded reserves will be. Our reserves are dedicated to our contract clients. Customers not on contract will not likely be able to purchase. This is the time to be proactive, and there isn’t much time left to do so.

If you want to get ahead of the curve and spare yourself and your business serious supply chain headaches, call Ace Steel Supply for a consultation at 832-300-1030.  

Click this link to learn how to receive $500 for referring new customers to us.