In past columns, we reviewed the process of how reinforcing steel is made in the United States. Scrap steel is melted in electric arc furnaces (EAF) and formed into billets, and then reheated and rolled into rebar.
You may be thinking, that’s interesting, but what does it have to do with me as a general or concrete contractor? There are two ways this process affects reinforced concrete construction. First is the proliferation of EAF production for steel “long-products” (including rebar) in the United States. Since the 1970s, the growth in steel making capacity has largely been through EAF technology growing from 25% of steel capacity in 1975 to more than 60% today—all relying on steel scrap as the raw material. In addition, integrated mills that make other steel products now use 25% to 30% scrap added to traditional iron ore. By one estimate, scrap represents more than 70% of the cost of billet production, and more than 60% of the total rebar cost.1 Obviously, then, the cost of reinforcing steel is tied directly to the cost of steel scrap.
Which leads to the second reason you should understand the rebar manufacturing process: the emergence in recent years of worldwide demand for steel scrap. This introduced unprecedented volatility to a segment of the concrete construction market that historically was very stable. This new volatility affects the traditional industry supply mechanisms between the owner, contractor, and rebar supplier.
Figure 1 shows a history of U.S. scrap steel prices from 1970 to today, published by American Metal Market. From 1970 to 2004, the price of scrap varied by less than $100 per ton. That changed in 2004, when scrap prices rose to unprecedented levels. The demand for scrap steel is a worldwide phenomenon, driven almost entirely by emerging economies, particularly China. Its impact is felt mostly by the mature developed economies that have been producing steel products for decades; the largest of which is the United States.
More important to owners and contractors is the unprecedented level of volatility that this world demand created. Figure 2 shows the wild fluctuations in scrap prices since 2004, including the $250 per ton increase between November 2007 and May 2008. This was followed by a steep drop in the fall of 2008, as demand dropped in the height of the Great Recession. Even more telling are the relatively steep increases and declines over the past few years. Demand has created a steady increase, but the volatility still exists, and is expected to continue as the new reality.
Reinforcing steel is an essential component of most concrete construction. As owners and contractors deal with their rebar suppliers, it’s important to understand the new realities facing this segment of the industry, particularly in large, long-term projects.
Thanks to Paul Lowrey with Steel Research Associates for assistance with this column, and American Metal Market for the figures.