Steel prices have fallen yet again after an already 10% price drop in 2014. In the realm of steel storage tanks, this decrease translates to the price of steel plate material dropping approximately $10 per hundred weight. For an API 650 above ground storage tank compared to prices in 2013, the customer can see a price tag savings from several thousands to tens of thousands of dollars depending on the size of the tank.
The question on the minds of buyers of steel storage tanks is “What’s the future of steel prices?” Is it worth waiting to see if steel prices drop again? Or is it best to lock in the low prices now before the market recovers and prices start to rise?
A crystal ball would be helpful at this point. The next best thing is to examine the causes of the price drops.
Prices are simply a reflection of supply and demand. One scenario where prices decrease is when supply increases while demand decreases. This scenario is responsible for the current low prices. So let’s take a look at the supply and demand influences on steel prices.
A common ire of American merchants is China’s ability to flood the market with cheap, usually lesser quality products. That same problem exists in the steel market; China produces over half of the world’s steel supply and at low prices. In the past several years, China has been flooding the market with steel beyond the world market’s needs. Supply beyond the demand had decreased the market price, creating lower profit margins for all steel mills.
Predicting many Chinese steel mills are on the edge of insolvency, analysts note that these mills have been selling steel at or below cost. Without the assistance of the Chinese government, analysts expect many of these mills will go bankrupt.
Bankruptcy of Chinese steel mills will significantly decrease the market steel supply, placing supply more in line with the world market demand. This would halt the price drop and potentially create a slight price increase.
Analysts gauge the demand in the American steel market by looking to the recovery of the American economy from the “Great Recession.” During the recession, American demand for steel significantly decreased while our economy was feeling the money crunch. While the economy continues to improve, the growth rate has not reached near the pre-recession industry levels. The automobile and construction industries are two of the main demanders of steel. Ford lessened demand even more by switching the design of the F-150 to use aluminum for the frame. Another slight decrease in steel demand is the drop in oil prices, causing the oil industry to decrease new building and drilling projects. Despite these bumps, if the American economy continues to improve the price of steel will likely increase.
Future Steel Prices
Most analysts are pinning their steel price predictions to what happens with the Chinese steel mills that are teetering on the verge of bankruptcy. If the Chinese government rescues the mills and those mills continue to churn out high levels of steel, the price of steel will stay at the current lower prices. However, if the Chinese government does not step in and the mills go bankrupt, the world market steel supply with significantly decrease, and steel prices will embark on an upward trend.
Have you been considering building a tank? Let Heartland Tank Services, Inc. show you how the prices for a tank have decreased and what size of tank will best fit your needs. Contact us at 800-774-3230 or through our website.