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How the Steel Shortage Impacts the Manufacturing Industry

A severe steel shortage is currently plaguing the manufacturing industry. While many hoped the end was in sight with COVID-19 starting to wane, that’s not the case. All indications point to a continued shortage for the remainder of the second quarter of 2021 and likely far beyond.

The shortage has sweeping implications across industries because of how frequently the material is used. Inventory is low, supplies are depleting, and the future looks grim.

There are several major reasons why this shortage has happened and why it has worsened with time:

  • Steel production facilities were shut down in response to COVID-19 from mid- to late-2020 and beyond.
  • Steel imports were also impacted by shutdowns, tariffs, and trade wars.
  • Because of general manufacturing shutdowns, the demand for steel decreased considerably for a time.
  • Due to working conditions, current events, and budget cuts, fewer workers were available within the industry.
  • Warehouse inventory levels were depleted slowly and are now at an all-time low.
  • Mines were also shut down or impacted by COVID-19, which means fewer raw resources available [1].

The result is a massive steel shortage. How will this shortage affect the current market? How will manufacturers deal with the issue, and when will it go away?

What Does the Shortage Mean?

The obvious problem is that steel is just not available to most manufacturers, so they’re forced to either wait until it’s available or find alternatives. And there aren’t many alternatives available.

The price of steel is also skyrocketing because demand has spiked, especially with many businesses and operations opening back up. Domestic steel prices have risen to more than 160% since August 2020 [2].

Manufacturers that rely on steel for production are stuck between a rock and a hard place. Their access to steel is extremely limited, and when they can get some, it’s expensive, lowering their margins and potential profits.

Moreover, steel is taking longer to produce, even with mills working overtime. And because those mills are inundated with orders, many of them aren’t taking on new clients. Some mills have even been shut down for unfortunate reasons. The Stelco mill in Ontario was hit by a cyberattack, for example. NLMK, which operates in Pennsylvania and Indiana, has been dealing with employee strikes, and negotiations only recently took place [3, 4].

These issues have continued to compound, meaning the industry and its dependent parties are in a bit of a bind right now.

A price forecast from IHS Markit posits that, although costs are at an all-time high, they should decline rapidly in the coming months, which means availability will increase [5]. Analysts recommend not locking in prices for that reason, even with the ongoing supply problems. Furthermore, recommendations are to wait to buy, if at all possible. Of course, that doesn’t help operations that rely on steel as a mission-critical component.

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Which Industries Are Affected?

It’s no secret that a lot of manufacturers rely on steel for various products or services. From automakers to consumer electronics, steel has a widespread presence. Sometimes, it’s necessary for the products themselves. Other times, it’s used for equipment, tools, machinery, and other hardware.

Here are some of the more prominent industries that have been affected:

  • Automotive
  • Consumer appliances
  • Construction
  • Energy
  • Heavy machinery
  • Transportation

Remember that these industries are not the only ones that rely on steel. Plus, the shortage creates a ripple effect, where other sectors feel the repercussions, as well. Retail, for example, will experience many shortages stemming from a lack of steel-related products and goods.

At a glance, it might seem like only industrial and commercial industries are dealing with the problem, but consumer-facing businesses are, too.

When Will the Steel Shortage End?

There’s no way to know for sure when the steel shortage will be remedied. However, with most of the world opening back up, operations will be getting back on track.

The problem with steel is that production is already way behind, and demand — along with orders — continues to grow. So, even though the market is headed in the right direction, it will be a while before the supply is above water again.

Overall, this translates to massive shortages even across adjacent industries. Without steel, construction and product development cannot move forward. And those are just two examples out of many.

The entire manufacturing industry is in a tight spot, and that problem compounds even more when you factor in the equipment and machinery needed to advance operations. From heavy machinery to automated hardware, steel is a major component of these systems.

Ironically, the machining process for steel requires equipment made of steel, which presents a unique yet challenging conundrum. Due to the material’s strength and durability, which makes it tough to work with and finish, incredibly powerful and precise equipment is needed [6]. It’s a perfect example of how the problem is related to more than just the raw material and how the shortage is making waves everywhere.

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Are There Steel Alternatives?

There aren’t any viable alternatives to steel, at least when it comes to durability, cost, and functionality. Steel is dominant because of its strength, superb corrosion resistance, and relatively low cost. Although, with prices skyrocketing, the cost-benefit has gone out the window.

Aluminum, titanium, and superglass are some alternatives that may be usable in the future after the materials have improved further.

Aluminum, for example, is much more brittle and not durable at high temperatures. Titanium is lightweight and strong, except at high temperatures, but it’s prohibitively expensive for most applications. Similarly, metallic glass is tough but requires expensive palladium. If an alternative to palladium can be found, the accessibility of superglass will grow.

Besides material alternatives, it’s also possible to import supplies. But that assumes normal market conditions. The pandemic has irrevocably altered the supply chain, alongside many other events, like trade tariffs and general availability. Manufacturers cannot rely on a domestic or international supply because of what can only be described as a series of unfortunate events. There is no easy way out.

Manufacturing Is in a Rut

The steel shortage is not going away anytime soon. It’s difficult to say where this situation will go or how it will end up. Right now, it seems as if things will get better, but there’s still a large steel deficit. Any process, product, or service that relies on steel as a resource will see significant slowdowns for some time, possibly through the rest of 2021 and beyond.

That’s unfortunate, but it’s the reality, and there’s not much anyone can do about it, steel mills and production companies included.

With demand growing, an incredibly depleted supply, and a surge in prices, there’s never been a better time to focus on material alternatives. Maybe this will be the catalyst that encourages manufacturers to research and develop substitutes.

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