What Drives Steel Mill Lead Times?

As steel mill lead times continue to creep up for all metals, let’s look at the primary factors that typically influence how long it takes to acquire material from the mills.

1. Raw Material Availability

2. It often starts with the level of availability of the material used to produce the metal. For example:

   • Ingot is metal in its rawest form, a relatively pure piece that will eventually be cast into a shape suitable for further processing. It is the key material used in the production of aluminum.

   • Carbon steel begins in the raw state of iron ore, scrap, coking coal, and natural gas.

   Any shortage of these key materials limits the ability to produce metal.

3. Mill Capacity

4. Quite simply, if capacity is constrained, the time it will take to get your material depends on the order in which it is received and/or the level of priority. This has been the biggest issue since the outbreak of COVID-19, as steel mills foresaw a drop in demand and promptly took utilization rates down to around 50% in the spring.

   Which leads us to the next factor...

5. Market Demand

6. Now that demand has come back online faster than anticipated, mills have been forced into catch-up mode, which subsequently sent prices higher.

(In)perfect Storm

Of course, external influencers can impact one, if not all, of these factors. This scenario played out with extreme weather conditions experienced in the Southwest in February.

At the request of Governor Abbott, Texas refiners took main units down to conserve electricity, allowing residents to heat their homes. In some instances, refiners even supplied energy to the grid from their cogeneration plants that normally would have powered their refineries.

Power that would normally be used to power mills and service centers in the region were instead diverted to help with the residential energy shortages.

Operations—already feeling the squeeze of market demand— begin producing at a reduced volume while their resources are reduced.

Once full power is restored, those mills must play catch-up and typically prioritize the affected orders.

Getting Back Online

Here is a glimpse into how that has been playing out in the stainless flat roll market in the Southeast.

Outokumpu Mexinox is stainless steel producer with a nationwide distribution network. Federal authorities had ordered the natural gas supplier for Mexinox to restrict supplies to 50% of their normal consumption. The intent was to allow the product to be diverted to produce electricity for home heating and other critical needs.

As a result, Mexinox was producing at a reduced volume for the past few weeks. They expected to return to full production the week of March 8, during which they would work to prioritize the affected orders first.

On another front, North American Stainless (NAS) had its supply of argon and natural gas, which is supplied from the Gulf Coast region, disrupted. As a result, NAS is reducing the tons they will accept orders on for May, which will further reduce the available tons for May production on all coil & plate products. Angle and bar production at NAS, however, should remain unaffected.

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