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The global price of steel has rocketed from $560 a ton in September 2019 and 2020 to $1,940 on 1 September this year, according to commodity analysis firm CRU Group.
A U.S. government index following the price of iron and steel saw costs double in August, compared to a year earlier, the biggest 12-month rise in a century.
The price hike is costing Campbell Soup more to buy cans, adding to Peloton’s cost for the metal parts in its exercise bikes, and making it harder for Steelcase to hold prices on its desks and file cabinets, The Wall Street Journal reported.
“I can’t even get [metal] materials at times,” Brian Nelson, president of tractor-parts maker HCC, said to the WSJ.
To keep factories humming, manufacturers are accepting nonstandard sizes of metal components, hiring more people to track down new sources of metal supplies, importing materials, and passing price hikes on to consumers.
Due partly to metals’ soaring prices, consumers already are paying more for cars and household appliances, the sticker price for which grew an average of 6.8 percent in August, the biggest jump in a decade, the U.S. labor department said.
China makes more than half the world’s steel but is expected to cut back production in future months to hew to its pledge to reduce carbon emissions.
Some in the industry have called on U.S. steel makers to reopen idled plants to combat the shortage, but American steel companies are already producing at the highest rate since before the Great Recession, the American Iron and Steel Institute said.
However, U.S. steel companies are already developing plants that will add about nine million tons of annual sheet steel capacity by 2023, growing domestic output by about 15 percent, the WSJ reported.
These newer, more efficient mills will make steel at lower costs, drawing customers from older, high-cost plants and force the industry to follow their lead, according to the WSJ.
TREND FORECAST: Given the range of shortages across a variety of materials and supplies, coupled with supply lines tangles, inflation will not ease substantially until at least some time in next year’s first quarter at the earliest.
The ECB might be able to delay raising rates for a while, but If inflation remains above 3 percent for the rest of this year, the Federal Reserve becomes more likely to be forced to raise rates next year, as much as two years earlier than its past pronouncements had indicated, as we noted in “Will Fed Cut Bond Purchases Early Next Year?” (27 Jul 2021).
TREND FORECAST: As reported in our 27 July article, Fed officials have said that they will end the Fed’s $120-billion monthly bond-buying spree before raising rates, a process those officials expect to take at least 12 months.
While the Fed is setting itself up for a scenario in which winding down bond purchases will be rushed, we forecast it is more talk than action.
With instability already derailing equities, raising interest rates and tapering bond purchases will roil global financial markets and trigger an economic panic. Therefore, depending on how deep equities fall, we forecast the Fed will slowly taper bond purchases and raise interest rates over the course of a few years while inflation eats away at the world’s economic recovery.