Tight supply, a labor shortage, and market volatility prevent accurate forecasting.
Alliance Steel LLC relocated its main plant and expanded during the 2020 portion of the ongoing global health crisis and continues to win new business, despite working within a market that is no longer predictable. “It has been 18 months of craziness” in terms of how the steel market has reacted through the pandemic, says Alliance Steel’s Drew Gross, Vice President-Commercial. Although Gross and his team continuously assess the steel environment, after this experience, they “gave up on definitive statements. Everyone has been wrong, from 30-year steel veterans to purchasing executives to analysts. This thing outlasted expectations. The way the market moved was just insane. Lead times have moderated in the past few weeks compared with what “we were dealing with over the past year,” says Gross. “It was hard to explain to customers, who are used to getting their steel in normal traditional lead times, that we have to place orders 14 weeks ahead. “Balancing customer orders with mill orders was very difficult. Only those customers with really strong forecasts were able to hit it right. We had to fill in the gaps to help our customers cover their own orders. The steel market is still tight but you can find material,” he notes.
Gary, Indiana-based Alliance is in the center of one of the largest steel-producing and steel-consuming regions in the world, one that’s known to have a very experienced industry-specific pool of skilled workers. Yet, the single largest limiting factor the company faces is the labor market, Gross says. “We have customer after customer saying that ‘if our workforce was stronger, we would be able to outpace our current forecast.’” Customers have indicated they are likewise disappointed. “We have hundreds of customers. Not one is exempt from labor problems. We are having calls with customers telling us that they have started to turn work away, which means they cannot work down their own backlog effectively. This is going to keep demand elevated for quite some time,” Gross says. The labor shortage is forcing leadership of manufacturing companies to approach the hiring, recruitment and retention process in new ways. “Alliance is seeing it, too. We are seeing sign-on bonuses and retention bonuses.” For example, McDonald’s is offering a $15 minimum hourly wage and a $500 signing bonus in the area. “For many of our customers, trying to compete with that as a manufacturer is tough.” The expense of training new hires is considerable. “There is the safety factor and the experience factor. Coming into a new workplace and being safe is our No. 1 priority. You are also investing a lot in training and retaining employees past the training period—getting them integrated into the process and staying there is difficult,” Gross says. “You go to create a shift schedule and a hardhat and gloves are just sitting there. Some employees are changing their minds” and moving on. As a result, there is a new emphasis on automation “to mitigate some of the issues with employment and workforce.” But it is very difficult to compare the cost-benefit ratio of automation versus the training and development of new hires. “Costs depend on how much training is required for each job and how that relates to a big capital outlay for automation. Resources used on training are high. But it depends on the process. We are evaluating that. Wages are going up so often that we are always having to change the data we’re looking at. It’s tricky to pin down the right cost balance.” Many well-run companies have employees who refer friends and relatives to job openings. “We have a culture of depending on referrals as new job openings present themselves,” says Gross. “Referrals tend to watch out for one another; they hold one another accountable. Hiring relatives of employees is common but now, it seems the labor pool is empty. This is true for us and for many of our customers. It’s hard to even get people into the door.” Alliance has grown significantly, especially in Gary, “so we need more labor than ever before.” Gross believes that if he had more people, the pace of the company’s growth would increase.
In mid-September, steel supply in general was better than it was 60 to 90 days ago, “but it’s still very tight,” Gross says. “We all know what’s going on with freight. There are not enough flatbed trucks to haul all the loads that are out there.” Previously, Alliance could place a single phone call to cover a load. “We are set up with a strong in-house company that supports regional freight, but the long-haul carriers are backed up, more so in the South than in the Midwest.” For the steel industry, as recently as five years ago, transportation “was an afterthought,” Gross says. “You took it for granted that a truck would be there. Now we have to make sure we can cover the lane and at the right rate.” There are bottlenecks for imports, too. “There are not enough people to unload ships, and there is difficulty in scheduling cargo. We believe it will get worse before it gets better. ”
Echoing others (see article on Churchill Steel Plate in Modern Metals’ September issue), Gross says, “We all need to be conscious of the life span of a quote in a very volatile market. You have to know that your supplier supports the quote you give to your customers and everyone stays whole on the deal.” U.S. prices may not move up at the same pace during fourth quarter as they had throughout the first nine months. “CRU just took a flattening step,” says Gross. The CRU U.S. Midwest domestic hotrolled coil index futures quotes as of Sept. 17 ranged from $1,918 to $1,930 per ton for September. The October futures price quotes, on the same date, ranged from $1,826 to $1,845 per ton.
As several mills expand their production capacity over the next few years, the market is likely to evolve again. On Sept. 16, U.S. Steel Corp. announced that it’s looking at sites for a $3 billion, 3-million-ton EAF steelmaking facility. “We like to see domestic capacity and availability increase for service centers,” Gross says. “We don’t want to see supply out of whack with demand.” In the meantime, he’s paying attention to the delta between foreign and domestic pricing and supply and how that will affect the U.S. market. “Everyone must make the right inventory decisions and keep polling customers about what will happen,” he says. “The one thing we can agree on is no one got this exactly right. “We are dealing with variables we never dealt with before,” he adds. “Consumer spending has changed during the pandemic. You cannot evaluate data in black and white. The reality lies in the gray.”
Article was written by Corinna Petry - Modern Metals October 2021