Ukraine Invasion Boosts Already-High Steel Prices

Russia’s invasion of Ukraine has roiled several major commodities markets, including those for oil and gas, wheat, fertilizer, steel, coal and vegetable oil. 

Global steel prices had already been climbing in the year before the invasion, thanks to the world’s economic recovery from the COVID-19 lockdowns and restrictions, although prices had softened in the U.S. over the past few months. In the U.S., during the lockdowns consumers bought steel-heavy appliances for their homes, catching shut-down steel mills by surprise and leading some closed mills to reopen. 

Based on revised Census Bureau data, the American Iron & Steel Institute (AISI) reported February 24 that the U.S. imported 31,476,000 net tons of steel in 2021, including 22,770,000 net tons of finished steel. These totals represent increases of 43 percent and 41 percent respectively over 2020. Final Census Bureau data for December 2021 showed total steel imports at 2,885,000 net tons, including 2,255,000 net tons of finished steel (down 0.7 percent and 4.0 net tons, respectively, vs. November revised data). 

According to World Steel, Ukraine had climbed to 9th-place among global steel exporters in 2021. A giant Ukrainian steel mill owned by Arcelor Mittal was forced to close March 3. Argus reported that prices of hot rolled coil steel could rise to between $1,300 and $1,400 a ton in the next few months. The U.S. hot rolled steel market had been softening before the invasion.

Sign up for Waterway Journal's weekly newsletter.Our weekly newsletter delivers the latest inland marine news straight to your inbox including breaking news, our exclusive columns and much more.

Iron Ore Imports Threatened

The Ukraine invasion has also put U.S. supplies of pig iron at risk. Pig iron feeds electric arc furnaces, which account for more than 70 percent of U.S. steel production. Russia and Ukraine together account for more than 60 percent of the U.S. pig iron supply, according to Argus.

The conflict is also affecting iron ore prices, which show continued rises since November. Annual iron ore imports from Russia and Ukraine total nearly 70 million metric tons. Disruption to global supply would add further upward pressure. Russian iron ore reserves total roughly 25 billion metric tons and represent the third largest in the world. Supply disruptions have already forced some European buyers to look elsewhere for iron ore.

If supplies are cut off, U.S. steelmakers may have to rely on Brazil, which supplied 20 percent of the U.S. supply of imported pig iron since 2018. However, Brazilian iron ore is high in phosphorus, making it less desirable. 

Nickel Trading Halted In London

Russia also controls about 10 percent of the world export supply of nickel, a key component in stainless steel and batteries. On March 8, the London Metals Exchange canceled all nickel transactions and halted trading until March 16 after prices rose an unprecedented 250 percent, with brokers struggling to pay margin calls. The reopening of the nickel market was plagued by technical glitches in what one news source called a “shambolic day of false starts.” At this writing, it is closed as the technical glitches are investigated. 

Industry Consolidation

Another factor driving steel prices is consolidation within the domestic steel industry. Last year, Ohio-based steelmaker Cleveland Cliffs bought AK Steel for $1.1 billion and bought additional U.S. mills from ArcelorMittal for $1.4 billion. The purchases “essentially made the steel industry a duopoly,” according to Fortune magazine, dividing the domestic U.S. steel market between giants Cleveland Cliffs and United States Steel. Consolidated industries have more leeway in deciding when to respond to high prices, or whether to let them ride, adding to their profits.

Barge Building

According to River Transport News’ annual survey of new hopper barge construction, in 2020 U.S. shipyards ended a three-year decline in new jumbo hopper barge construction despite the negative economic effects from COVID-19. Despite last year’s improvements in overall U.S. economic activity, however, deliveries of new hopper barges fell last year, RTN said in its January 24 newsletter. In RTN publisher Sandor Toth’s view, the primary reason for the dip in new barge construction last year was high steel prices. 

Barge operators on the Mississippi River System took delivery of 300 new jumbo hopper barges in 2021, according to RTN. Deliveries were down 22 percent from the 385 new hopper barges delivered in 2020. RTN called new hopper barge building activity “subdued by recent historical standards.” By comparison, in 2016, new hopper barge deliveries totaled nearly 1,000 barges. Most hopper barges delivered to the inland marine sector in 2021 were from orders placed during the third or fourth quarters of 2020 or early in 2021, when the price of plate steel was between $500 and $600 per ton. By the end of the first quarter, steel prices began to “skyrocket” with prices exceeding $1,000 per ton for the remainder of the year.

Kevin Dempsey, president and CEO of the American Iron & Steel Institute, said, “As we monitor the crisis in Ukraine to address any potential impacts to our industry, the safety of the Ukrainian people remains foremost in our minds. The American steel industry is resilient. The supply chain for steel is secure, and our companies have said they expect limited impact on their U.S. operations at this time. The domestic industry has a diverse supplier base and is nimble enough to accommodate a wide range of steelmaking materials to maintain production capabilities. The American steel industry remains ready and able to provide the materials needed to rebuild our infrastructure, increase our energy production and provide for our national security.”