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Northern Territory Cattlemen's Association

Steel Struggles

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Steel prices and what’s impacting them

If you’ve tried to purchase any steel products lately, be it a shed, water tank, or veranda, you may have heard about a steel price rise, and increased lead times for steel manufacturing. But why has there been a rise in steel prices in Australia, and what is causing these extended lead times?

Well, it turns out the answer to that question is; a lot of things.

Firstly we have to look into the raw materials that go into the production of steel. Traditionally, steel needs three major ingredients to produce, iron ore, metallurgical coal, and limestone. This process is achieved by creating molten steel from iron ore in a blast furnace, heated by metallurgical coal – which both removes any impurities from the iron ore such as oxygen and other elements and imparts a small amount of carbon, which strengthens the structure. The limestone – or flux – is used to remove any other impurities, helping reduce the iron to a more pure, elemental state.

Despite the rise of steel recycling in China, and blue sky thinking from many innovators around green steel – which involves a steel mill that uses hydrogen rather than carbon – this remains the predominant method of steel production.

Iron ore and coking coal prices

Since the beginning of the pandemic, iron ore has seen an increase in both the price for the raw material and demand for finished steel products. This has been linked to increased infrastructure thanks to government stimulus, as well as the closures of steel mills in many countries due to the pandemic itself.

Commodity prices were a big part of this, and China saw iron ore imports increase by over 150% in 2020, as the iron ore price boomed from $83.50 USD per tonne in May 2020, to $237 USD per tonne by May 2021. While this has cooled a little since its peak, the stress on steel products hasn’t, and many experts see the demand for steel not peaking until 2023.

Coal too has seen an increase in demand, partially due to the high steel production around the world, the rapid growth of India and China, and also many nations mining less of the product due to environmental concerns.

The lack of consistent supply of these two major products has made it much harder to produce steel at this unprecedented rate and placed significant stress on the supply chain. Steel producers such as BlueScope Steel have even been forced to place some restrictions on how much steel companies are able to order.

The impact of the pandemic

As with everything these days, the pandemic has had a hand in the steel price increase as well. Transport and shipping have taken a hit since the beginning of 2020, and while the Suez Canal may spring to mind for many, border restrictions and safety protocols between nations have had a bigger impact on global demand.

This has also resulted in a lack of workers being able to cross both state and international borders to work in the mining industry, particularly in Australia and Brazil, two of the world’s largest iron ore producers.

Brazil in particular has been hit particularly badly, not only being one of the worst-hit nations during the Covid-19 pandemic, but also having suffered some high profile disasters in iron ore mines in the past few years, significantly reducing their iron ore output.

Many governments, including those in Australia, have provided incentives for both residential and commercial construction activity during the pandemic, in a bid to kickstart their respective economies, which resulted in Australia seeing its highest level of new house starts in over fifty years, with 93% of Master Builders Association members reporting steel delays.

What does this mean for rural Australians?

Steel has long been central to the way of life in rural Australia, with construction from corrugated steel occurring in the outback as early as 1850. The product was seen as revolutionary; a lightweight, versatile product, that was also highly durable, it was used to construct homes, sheds, shops, water tanks, and even churches.

A stark contrast to the brick-and-mortar seen in Australia's major cities at the time, corrugated iron soon became synonymous with the Australian outback and rural living.

To this day, most homes you will see in rural Australia have corrugated iron roofs, and steel sheds, water tanks, and windmills dot the landscapes around these properties, providing precious water, and protecting things from the harsh climate.

With steel harder and more expensive to get a hold of, any new builds of these items have become more expensive, delayed - or both - as companies scramble to meet the demand on their finished steel products, despite having less access to raw materials thanks to the increase in steel demand worldwide.

Prior to the pandemic, the standard lead time for a Pioneer Water Tank was 4-5 weeks from the date payment was made, meaning once you had purchased your tank, you could expect to see it installed in approximately one month.

This has since blown out to over ten weeks, due to a combination of increased demand on water tanks, and less steel coming in to manufacture these tanks – as was highlighted in the most recent Northern Territory Cattlemen’s Association Newsletter, published on the 15th of October.

What this means going forward

Unfortunately, as highlighted above, much of this situation is out of anyone person or organisation’s hands, and whether this is a new normal or something that will return to previous levels remains to be seen.

The one thing we can control is how proactive we are in the face of these longer supply times, ensuring that plans for a new water tank, shed or home improvement begin as early as possible so that you aren’t caught waiting for the supply of a product – especially one made from many components.

Supply chain issues haven’t been unique to the steel industry in the pandemic, with electronics famously having shortages in new computers, phones, and consoles. In countries such as the United States, supply chain issues are even extending to workers, as companies are scrambling to staff to a high enough level to manufacture their products.

If you are looking to get ahead of the curve, or have now realised that you’re needing a steel rainwater tank or stock water tank installed early in the new year – now less than ten weeks away – call Pioneer Water Tanks today, on 1800 999 599


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