The Stainless Steel Lining

August 4, 2004 - A lot has been written about the price of steel and its availability. In recent months, steel prices and surcharges have risen about as fast as George Bush's blood pressure after seeing the movie Fahrenheit 911 . And the timing is bad—equipment buyers were just starting to feel good about the business climate.

Blame for the unprecedented rise in steel prices is directed at the Chinese. This emerging economic giant is sucking up concrete and steel at a phenomenal rate, currently consuming one-third of the world's rolled steel production. But what is lost on many of us in this cloud of supply and demand is the Stainless Steel Lining. Even though everything with steel in it—from bobby pins to boom lifts—costs more to produce, there are some positive effects to be considered.

When the price of steel goes up it's not unlike what happens when oil prices are on the rise. When oil becomes expensive, capital is invested in expanding exploration and increasing drilling. It means more refineries are built which opens up long-term maintenance jobs affiliated with those refineries. This, of course, increases the demand for all kinds of lifting equipment.

Steel is not a lot different. The more expensive it becomes the more capital is invested in producing it. On a recent trip to Chicago , I learned about major efforts being initiated at old coke ovens on the south side of the city. Coke is an essential element in the production of steel. One such plant is getting a $300 million capital investment just for the production of coke. Browsing the internet I found many projects that are a direct result of the need to increase steel production. There is no doubt that billions of dollars to be spent on projects in the steel industry is an attempt to catch up with demand.

Much of the domestic steel production had turned to smaller mills recycling scrap into items like re-bar, nails, and wire. Many of these plants were closed, mired in the depressed steel demand brought on by the 2002 economic slowdown. But some of these plants are now getting a new lease on life.

The price spike, however, should not be simply attributed to a shortage . It has, more appropriately it would seem, been characterized as a “disruption” in the normal demand. Prices for items that doubled in the last six months have stabilized and the prices for other items have started to drift back down. It will take time, if ever, for prices to return to their previous levels.

Tariffs intended to protect the U.S. steel industry (and partly to blame for the current state of affairs) have been dropped or altered in order to increase the flow of steel to American manufacturers. But it stands to reason that U.S. steel producers will use this opportunity to expand capacity. China 's demand reaches far beyond that needed to host the 2008 Summer Olympics. China is an economic giant poised to become the largest economy in the world—and it will look to the rest of the world to help supply its massive appetite. That's something we can all benefit from.