Don Oborowsky, President and CEO of Waiward Steel, has strong opinions about the matter. As he put it, the problem isn’t “shortage,” but “sourcing.” As Don explained, before steel prices were wild and changed like prices at the gas pump, there were a wide variety of sources for quality steel. When he needed materials, he purchased them from the source with the best price. Back then, Don claims, prices were not only low, they were too low. Scrap steel could be had for 3 cents a pound and refined steel cost 36 cents.

Things have spun completely around. Now, Don has fewer choices. He sells scrap for 7 cents a pound and pays 68 cents for refined steel. This steep and sudden price increase—30 percent in the last six months alone—doesn’t reflect a shortage of steel, Don maintains, but a shortage of sources. “Steel mills are making a killing,” he says. “And there’s scrap metal all over the place. Just look at the fence lines, at all that old farm machinery.”

Why the wild jump in prices? The answer is always the same: China. In recent years, the Sleeping Giant initiated a new industrial revolution which, like Alberta’s oil industry, relies on steel for its skeleton. China’s sudden hunger for both iron ore and scrap steel unbalanced the marketplace. While China is a major steel producer, its demand for more raw product required it to secure huge amounts. As with most commodities, being able to buy in larger amounts over a longer period of time translates to lower prices from suppliers eager to quickly move their product. Buying in bulk also means that purchasers can negotiate lower prices. While this guarantees China its steel, it leaves less for everyone else.

Steel supply companies have been working to secure these bigger contracts. During the competition, many companies were swallowed up or died. Bethlehem Steel of Pennsylvania, one of the original steel mills, no longer exists and in 2004, Canada’s own Stelco Steel asked for bankruptcy protection. Those that did survive the change in market climate went on to make record profits, like Canada’s Dofasco. The problem is that now only big purchasers have the clout to secure quality steel at a better price.

Don Oborowsky has an easier time than a lot of steel companies that cater to the oil field. Waiward Steel is a big boy in the market. His company makes a variety of steel products—like crushers, hoppers, bridges, industrial structures and equipment components—destined for companies like Dow Chemical and Suncor. But even Don’s clout can’t get his company the structural steel it needs from Canadian sources. This grade of material usually has to be secured from European sources. Steel plate has to be imported. Buying power can’t overcome the global market fact that some countries just have more access to more amounts of top grade steel. And Canada isn’t one of those countries. Canada is limited to a standard grade of plate material.

But what about growing and emerging companies? They have to rely on commodity brokers to carefully follow market prices. Following the ebb and flow of availability, they secure their steel from countries like Brazil, Japan, Mexico and Italy.

Purchasers can usually get lower prices from foreign markets due to one factor: cheap labor. Unions in Canada and the States have resulted in setting domestic steel prices out of reach for companies scratching to make a profit. Smaller companies also have the disadvantage of not being able to store large amounts of raw material for future use so they can’t stock up when prices do slip a notch. Most companies carry two week’s worth of inventory, which doesn’t sound like much, but can tie up millions of dollars of a company’s operating budget.

For many companies, this translates to a shortage.

In the oilfield, this means that many companies purchase lower grades of steel products than they would like. Instead of the higher quality steel, oil companies will settle for the best priced grade that falls within safety parameters and job specifications. “Companies would like the Cadillac product, but most of the time, you settle for what you can get. It does the job,” said an oilfield consultant.
As of November 2004, things were looking up, according to NAFTA’s steel industry report. The Chinese demand for steel was slowing, freeing up more material for other markets. If all would go according to plan, this would likely lead to a drop in prices.

But life rarely behaves. The world situation can change overnight. In the wake of a devastating tsunami, hard-hit countries will be struggling to rebuild whole cities, with steel as the backbone, as it is in the oil industry. And once again, people whose livelihoods rely on steel will brace themselves.

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