It’s the season for building and with the improving economy, construction demands are higher than expected. However, with the bankrupting Chinese steel mills, the resource supply is severely halting. The increased demand combined with oncoming decrease in global steel supply will result in serious problems for construction and manufacturing industries.
The Chinese steel-producing mills are going bankrupt, thus initiating the nightmare ripple effect. China had been deeply integrated into the global manufacturing supply chain. They have produced more steel than the rest of the world combined, more than the U.S., European Union, Russia and Japan.
Economists predict a steady growth of steel prices through 2019. The Chinese-incited ripple will result in an overloaded U.S. Steel Corporation, expensive steel products and costly construction projects. This growing inadequacy has the potential to seriously dampen the global economy.
THE STEEL RIPPLE
With a little over-ambition, construction managers led the design of many luxury apartments which citizens have been unable to afford. This absence of tenants has led to great loss of revenue and slowed construction efforts. The situation has left China with far more steel than they can currently use.
In response, the Chinese officials have decided to limit coal mining to limit steel supply and thus slowly raise the prices again. However, with the current excess of steel supply, their prices have dropped exponentially into the negatives to compete with U.S. prices and sell of their products. This process is referred to as dumping, a worst case scenario resort to keep prices from crashing to rock bottom.
To combat the incoming flood of ultra-cheap Chinese steel, the U.S. government has chosen to impose hefty export tariffs, causing international tension. According to the Ministry of Commerce, the extremely dissatisfied Chinese urge the U.S. to follow the World Trade Organization rules. On the flip side, U.S. Steel believes Chinese producers are breaking international trading rules and request the U.S. International Trade Commission to Investigate. This back-and-forth exchange has been escalating within the last month, each country protecting their interests and economies.
- Struggling U.S. Steel Corporation
The U.S. Steel Corporation have fallen victim to what they believe to be illegal trade practices. Overly cheap steel imports have been cutting into the market, causing industry layoffs across the country. U.S. Steel has laid off nearly 800 employees in Northwest Indiana. Over the last year, over 12,000 steel jobs have been lost.
- Rising product prices
As a result, several manufacturing companies will begin to feel the effects as they struggle to maintain competitive prices. This includes rebar, roofing trusses, commercial doors, sprinkler piping, electrical panels, bathroom stalls and more. Five key steel-related construction and industrial products are predicted to experience significant price increase into 2017.
- Security Wire Fencing: 4.5%
- Nails: 3.8%
- Elevators: 4.2%
- Demolition Machinery & Equipment: 3.6%
- Forklifts: 3.2%
Almost every division will be impacted as construction and industrial product prices are jumping. In addition to increased material costs, building codes and fire department regulations now require more materials for projects. For example, contractors are required to install more sprinkler systems, special electrical breakers, backflow regulators and pumps. While these new rules and technologies have improved overall quality and life-span of buildings, initial costs have increased as a result.
- Increased construction costs
Rising steel prices present another problematic factor driving construction costs, which have already been rising. The trends show an increase in construction costs, rising approximately two times the growth rate of the GDP in recent years. In addition to material costs, labor availability and rising interest rates have contributed to pricier construction projects.
A combination of the expensive resource and related products will significantly increase construction costs. With loads of steel equipment used on job sites from the most basic of hammers to bulldozers and tower cranes, the ripple effect will be felt.
BIG PICTURE IMPACT
As you read through the facts and begin to understand the oncoming effects of the economic fluctuation, consider the individual impact. Knowing about the price increases will help consumers to more knowledgeably approach supply agreements. Considering purchasing sooner rather than later.
The imbalance in demand and supply of steel will produce a ripple effect significantly slowing down national economic growth. Until these disputes can be amicable resolved, global trading will be tense.