Photo of rolls of steel with industry trend graphic

Amidst global supply shortages and turbulent price changes, the White House has finally announced it will be suspending tariffs on European steel and aluminum. Contractors can be on the lookout for relief from high prices — but it’s still too early to predict all the effects of the deal.

The US Chamber of Commerce reported that 46% of construction contractors believe tariffs on steel and aluminum would have a “high to very high” impact on their business. But as challenging supply shortages continue, it remains to be seen if the recent US-EU trade agreement will result in its stated goals. 

The Biden administration wavered on its position in recent months and debated various ways to pursue its interests in facilitating a US-EU trade agreement. Ultimately, the United States negotiated a joint effort with the European Union to “re-establish historical transatlantic trade flows in steel and aluminum,” and to “address shared challenges in the steel and aluminum sector.”

The “World’s First Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade” goes further than just expanding trade: The agreement also seeks to address climate concerns by incentivizing investment in American “green steel” and reducing reliance on “dirtier” steel produced in China.

The two-fold plan, aimed at both reducing market distortions and lowering carbon emissions, is touted to reduce end-costs for American consumers as the inflated demand for steel products shows few signs of returning to pre-pandemic levels.

Unlike lumber, the inflated demand for steel may continue

The effects of the COVID-19 pandemic threw a wrench into the natural supply and demand cycles of consumers. With many forced out of the office and into the home, consumer needs underwent a large shift.

In the early months of the pandemic, residential DIY and home improvement projects skyrocketed: According to US Census Bureau data, residential construction projects increased by 20% from June to July of 2020, and was even 10% higher than pre-pandemic July 2019 levels.

This increase in construction activity caused the demand for lumber, steel, and other materials to surge. Unfortunately, most producers were caught off guard. Many lumber mills across the globe were forced to shut their doors and send their employees home.

The most basic laws of supply and demand dictate that with both increased demand and diminished supply, prices will increase dramatically. This is exactly what happened, with the price of lumber surging roughly 300% and steel topping out at $1,945, a similar percentage increase.

With the economy starting to get back on its feet and many workers returning to their workplaces, some of this demand has finally tapered off — specifically with lumber, which has finally fallen back to its pre-pandemic price of roughly $500-600.

Lumber Prices Drop Below Pre-Pandemic Rates: What Should Contractors Know About the Material Climate?

Yet steel remains stuck at a heavily inflated price. While supply has started to ramp back up, some predict the demand for steel won’t be going down any time soon. Unlike lumber, steel is not as closely tied to consumer home improvement projects, and won’t be as affected by the return to the workplace. 

In fact, many major industries such as oil, gas, and energy will only increase their demand for fresh steel as the economy continues to recover. Once the global chip shortage begins to ease, automobile makers will also need huge amounts of steel to elevate production of new cars.

Add to this the recently passed $1 trillion infrastructure bill — which is expected to generate a wave of new steel-intensive construction projects across the nation — and the demand for steel may simply never return to pre-pandemic levels again.

Many contractors have already noticed a shift. According to a 2021 Q3 report by the US Chamber of Commerce, steel has replaced lumber as the material most contractors are experiencing a shortage with. Prior to this point, lumber had been the number one product reported for over a year.

Although the economy appears to be making a recovery, it’s clear that the pandemic will have long-lasting effects on materials, labor, and consumerism. 

The price of steel, still hovering close to $1,700 at time of reporting, suggests contractors may need to get comfortable with higher project costs for the indefinite future.

Political and climate aspirations aside, one main goal of the joint US-EU tariff agreement is to reduce prices to consumers by “providing relief for American manufacturers who rely on readily accessible, affordable steel and aluminum to make their products.”

By increasing the flow of high-quality and low-carbon steel and aluminum between the United States and European Union, while simultaneously restricting the “dumping” of low-quality steel from China, the agreement hopes to ultimately reduce the price of good “green steel” for manufacturers.

Market watchers may already have noticed a slight but sharp 12% decrease in the price of steel since mid-October. Whether this was directly related to anticipation of the trade agreement’s announcement is not clear, but construction businesses will probably enjoy the small relief for now. It’s unclear exactly how much the net supply of steel will be affected by the agreement, but investment in “good” steel may benefit everyone in the long term.