The Australian construction industry is already feeling the effects of an ongoing timber shortage, but are we also prepared for a steel shortage? David Buchanan, CEO of the Australian Steel Association, says it’s not only possible – it’s already here.

For years, steel markets have been dealing with the opposite of a shortage: a global oversupply mainly due to excess capacity in China. However, as COVID-19 spread across the planet, governments and central banks needed to redirect resources locally in order to reduce economic pressures from the pandemic.

In many cases, that meant making big infrastructure pledges and pumping up commercial and residential construction projects. While an intelligent strategy to stave off the financial effects of coronavirus, it ended up creating a new problem: with a majority of countries now investing on new construction projects, that oversupply was quickly replaced by soaring demand.

“When COVID-19 hit, so many steel mills around the world wound back production with the expectation that the pandemic was going to really slow things down,” Buchanan says. “But of course, what actually happened is that it sped things up. There were also container-availability issues last year globally and with terrible congestion in the port of Sydney further impacting deliveries. On top of this, we’ve also had constrained supplies from steel mills that are still ongoing."

“Add to that the huge problems with shipping that are impacting supply, and we find ourselves in a position where steel prices are at all-time highs.”

So what’s the reason for this sudden – and clearly unexpected – shortage? With the media politicising Australia’s ongoing woes with China, it’s easy to get caught up in the hype that the People’s Republic is solely to blame for the steel shortage. But as Buchanan sees things, that couldn’t be further from the truth. In fact, he says that cuts to China’s steel exports are more due to their reduced production of the material, which is part of the country’s new environmental objectives.

“We don’t think it’s related to China,” he says. “There are lots of widgets, nuts and bolts that come out of China, but in terms of raw steel – so your structural beams, plates and coils – a lot of the Chinese production has already been impacted by anti-dumping action, which has directly reduced imports from China.

“There’s two million metric tons of steel imported to Australia every year, but China accounts for only 10–15 per cent of that. So they’re not the reason for the shortage.”

Geography has always been a thorn in the side for Australian imports. Not only are we a small market compared to much larger first-world nations, but we’re not on a sea route to anywhere else, which means we’re quite far down the list when it comes to getting available steel supplies sent our way. And according to Buchanan, things won’t be turning around for quite some time.

“The key issues are around the shipping, container and vessel availability, as well as continued tightness and delays,” he says. “I think it's going to go on for another 12 months. There aren’t enough vessels and the US market is overheating, so most are heading that way because they can make so much more money rather than bringing steel to poor old Australia.

“In the short term, it's not going to resolve itself. There is a hope that things will start to improve maybe in the first half of 2022, when the local mills start catching up with production demands. But expect another six to 12 months of pain.”