United States: Oil Prices Become a Problem for Steelmakers


A decrease in the demand for U.S. steel is negatively affecting domestic producers and importers. Steelmakers in the United States are quick to blame a spike in the import of lower priced Chinese steel shipments to the U.S. for the recent plunge in prices. However, with imports nearing their lowest point in four years, the real culprit is coming to light as foreign steel imports into the U.S. dropped 36% year-over-year.  According to The Steel Index, a trade publication that surveys buyers and sellers, the price of hot rolled steel coil (a benchmark product) posted a loss of 38% this year – pointing to the true cause of the low demand for U.S. manufactured steel which is suspected to be the energy collapse.

As the energy sector copes with the slump in oil prices and sends many of its workers seeking employment in other industries, the demand for products produced by steelmakers (such as steel pipes and drill bits) has declined significantly. In the past 18 months, the price of oil has dropped 66%, helping to explain the decline in demand for manufactured products that support the energy industry. Domestic mills have idled the most capacity since the financial crisis, operating at only 61% of it’s facilities during the week ending December 21, 2015.

In years past, the sales of high-margin products to oil and gas companies had helped shield U.S. mills from sluggish growth in construction and other industries. Analysts suspect that no one expected the slump in oil prices to last this long and, therefore, failed to foresee the trickledown effect that the commodity price would have on the manufacturing industry and more specifically steelmakers. As a result, of the energy collapse, the consumption of steel inventories (held by both steel and energy companies) decreases and take longer to deplete. This only exacerbates the decline in consumption and can lead to a perceived halt in production.

With productions declining steadily over the next few months and likely until the oil price recovers, many manufacturers will be sending workers back into the labor pool. Possibly some of those workers recently hired from other industries such as the energy industry. Oil and gas workers who managed to secure engagements in manufacturing and other industries which depend on, or provide products to, the energy industry may soon find themselves back in the labor pool as companies seek to cut costs by eliminating positions in production and manufacturing of steel products.

Metropolitan areas with the highest concentration of steel worker jobs and location quotients in this occupation include Lake Charles, LA; Odessa, TX and Beaumont-Port Arthur, TX. These areas have between 3.44 and 3.57 people employed per thousand jobs, according to Bureau of Labor Statistic numbers from May 2014. The top five states with the highest number of workers employed in steel manufacturing include Texas, California, New York, Louisiana and Illinois. However, the states with the three highest concentration of steel workers are Louisiana, South Dakota and Utah. These areas look to gain the most workers from the steel manufacturing industry back into the labor pool as layoffs continue throughout the manufacturing and energy sectors with regards to steel and iron related positions.

With more highly skilled manufacturing and energy workers available in the labor pool and limited engagements for these specialized skills hiring costs and base wages to hire these workers could also decrease. This presents an opportunity for other manufacturers to gain qualified and highly skilled workers at lower rates than in the previous decade ahead of the dip in oil prices. States where the pay rates for steel workers have been the highest in the past include New Jersey, New York, Illinois, Nevada and Massachusetts. Employers of workers in these areas especially may experience an opportunity to save money on pay rates to fill positions within these states should the demand for manufactured steel products continue to decrease until the end of the first half of this year.