Each quarter we share our internal Supply Chain Report where we also answer some questions we receive from our clients. Below are answers to some of the questions we felt would be helpful for our community.

Q1 2021

Integrated mills exclusively produce flat rolled products, which in the United States is largely allocated to the coil side of flat rolled. There is only one mill group that makes plate from mined products. This limits our purchases from integrated mills to less than 7%, including tubular products made from integrated HR coil substrate.

With regards to international procurement, Schuff maintains a robust partnership with many international sources. We only procure international product if the project allows for it and the general contractors would like an international option. Each year international procurement varies but can include 5-40% of product as required by our customers. It’s important to understand that some international product carries extra duties and tariffs and current worldwide demand has increased so international products are not as cost competitive.

Currently the price of steel is impacted regardless of producing mill type. With integrated mill capacity being limited, electric arc mills are taking on more which has meant an increased demand for scrap. That demand has led to higher prices on electric arc furnace (EAF) products as well.

Canada and Mexico are considered international sources and are both covered by the USMCA – United States Canada Mexico Agreement – which replaced NAFTA in 2020. This agreement does not remove any 232 tariffs that would apply to import raw material.

Quarter 3 2021

Integrated mills consume 1.5 man hours to make one ton of steel compared to electric arc mills taking only .5 man hours to make one ton of steel. What is important to note here is the actual cost associated with these hours and the history of the labor costs.

Integrated mill costs are estimated at $25.39 per ton of steel for 2021 and electric arc mills are estimated at $12.21 per ton. Compared to the overall cost of making steel, the labor percentage is relatively low in today’s market; 4.9% for integrated and 2.1% for electric arc. If we were to look back to pre-1980, around the time electric arc mills really started to become common, the average labor rate was higher and the man hours per ton of steel was around 10.

With the growing support of the mini mill came the death of many integrated mills. This was partly due to high labor rates and poor output coupled with their resistance to move forward with new technologies that would enhance operations. The result was a lack of competitiveness on every level and the closure of most of the major integrated mills over time. The integrated mills that didn’t fail had the foresight to renegotiate contracts, introduce better technology and reduce man hours per ton to become much more competitive in today’s market.

It is in the interest of everyone on a project to make awards as early as possible for commodity type products, especially when the market is climbing, like today.

Mills will work with fabrication partners on price protection for some components provided the job has been awarded to a fabricator. This is the best way to reduce the risk of price increases. During that period, if the market falls and no material has been bought yet, we are able to renegotiate the pricing protection we have. It is also very important to follow the market trends and educate yourself on the factors that can have an impact on price. Knowing where the market will trend is in the best interest of all involved, the fabricator, general and owner.

For all the moving parts, the bottom line is simple. The earlier a project is awarded, the lower the risk of price fluctuation.

Monitoring the change in capacity and production is one of the most critical factors we monitor to determine both price and availability.

An increase in production percentage usually indicates an increase in demand. Once the production percentage crests 80, the lead times can be affected. On flat products this means an increase in lead times from roughly 4 weeks to as much as 12 weeks. On long products this means that rollings close early, but more importantly, they cast early. This is significant because we are required to have steel requirements in before a rolling closes and casts and while changes to existing orders can be made before a cast, after cast we own the material.

In a low capacity market, flat product lead times decrease and long product rolling schedules stay open longer and cast dates are very close to roll dates. In today’s market, capacity percentages are higher but capacity of tons produced is lower than two years ago. The mills have not brought capacity back on that was removed from COVID-19 related shutdowns and have no intention of doing so unless import tons grow too high. It is really important to watch both indicators – production and capacity – so true demand is determined.

Schuff Steel’s internal quarterly supply chain report

A comprehensive look at what’s driving the cost of structural steel.

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Quarter 2 2021

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Quarter 4 2021

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