Rise of southern rebar may boost nearshoring, a boon to buyers

Opinions are mixed on whether new steel reinforcing bar capacity will be absorbed by a down market, but a spate of planned mills in the southern United States may signal a shift toward nearshoring that could offer buyers relief from high freight costs and volatile global supply chains

David Stickler’s newly formed Highbar LLC has selected a northeast Arkansas greenfield site near Osceola for its first rebar mill, according to a press release issued Tuesday November 1.

The Arkansas location will be the first of two planned rebar mills from Highbar, each with a 600,000-ton-per-year annual capacity, that Global Principal Partners, the former Big River Steel chief executive officer’s private equity firm, announced in June.

Groundbreaking is planned for the second quarter of 2023, pending permit approval and equipment deliveries, and construction is estimated to take 22 months, according to the release.

The location of the second planned mill has not been announced.

Upcoming southern capacity

The southern US could see roughly 2.5 million new tons of rebar capacity come online in the next few years if all currently known plans come to fruition on present schedules.

However, mills “always get permits for way more than they plan to produce” to enable growth down the road, a southern fabricator source said.

Planned mills have been known to clear permitting hurdles and announce specific plans but still never successfully reach the finish line, sources said.

Such failures to launch are more common among startups than new locations of existing companies, sources added.

  • Ashoka Steel Mills, Nucor Corp and Commercial Metals Co have plans to bring about 1.28 million combined tons of new rebar capacity online across the southern US by 2025, although CMC’s upcoming Arizona mill capacity will fluctuate between producing rebar and merchant bar.
  • Miami Steel, a startup associated with former US Steel and Gerdau Steel executive Mario Longhi, is in the permitting process for a Florida rebar mill that would add another 750,000 tons per year, but for which no timeframe has yet been disclosed.
  • Additionally, Optimus Steel has new equipment coming online in 2023 and 2024 that will add straight rebar to the production lineup at its Beaumont, Texas facility.

Three ways domestic capacity benefits buyers

  1. Infrastructure
    Increased domestic capacity may enable buyers to rely less on imported rebar — a particular boon given the domestic purchase requirements associated with the Bipartisan Infrastructure Law, sources said.

    “[The Bipartisan Infrastructure Law] is going to require domestic rebar and we saw that, with the displacement of import, we just don’t have enough when things are good,” an eastern source said.

  2. Flexibility
    Increased domestic rebar capacity may also add flexibility to the market, allowing for shifts away from imported material at the pace and scale that best serves market conditions, according to the southern fabricator source.

    “Maybe more emphasis will be placed on Buy America if we suddenly find ourselves with so much capacity,” he said.

    “By the time you add growth and take away the market share of foreign mills, maybe we could be 100% reliant on our own production, [whereas] imports were always necessary before to reach requirement levels,” he added.

  3. Margins
    The same pandemic-related conditions that made it difficult to ship rebar across regions also made imports less desirable, according to the eastern source.

“The distributors — traditionally import buyers — fell in love with the domestic mills during this time, and the mills embraced this new relationship,” he said.

“It is not loyalty or patriotism; it is financial,” he continued. “Imports have to be paid for when they are unloaded, requiring a large cash outlay for a product with low margins. When [customers] buy from mills they aren’t invoiced until it ships, one load or rail car at a time.”

“With interest rates climbing, those thin margins get thinner so [distributors] would much rather buy domestically,” he said.

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), import, loaded truck Port of Houston for immediate delivery was $900-940 per short ton ($45-47 per cwt) on November 2, sideways since October 19 but down by 2.13% from $920-960 per ton on October 12 and by 7.07% from $980-1,000 per ton on November 3, 2021.

Shipments of foreign rebar to the US increased by 3.41% in September compared with August, but fell by 24.93% compared with September 2021, according to preliminary US Census Bureau data released on October 26.

Localized supply chains

While capacity discussions on a national scale still take place, market participants are increasingly unfazed when new mills are announced outside of their own regions.

“I do not see this impacting the West Coast market,” a West Coast rebar source said when Ashoka announced plans to build a rebar mill in Texas. “Shipping costs have become too material.”

Nearly three years into the supply chain disruptions and high prices that began with the Covid-19 pandemic, this sense of regionality has grown especially hyperlocal.

“Transportation costs have become such a significant component, so when you say [new mills are planned for] Arkansas and Texas, my first reaction is ‘I’m in [a different southeastern state], so who cares?’” the southern fabricator source said.

Still, the effects of new mills ripple beyond the local communities they serve, he continued.

“What it does do is change the direction some mills are able to ship,” he said.

“With [Nucor’s Frostproof, Florida mill] now online Nucor Birmingham no longer ships to Florida, so they have to reroute, which disrupts CMC in Cayce, for example,” he said. “Now they’re fighting for territory in the Atlantic region — so it does have an effect.”

A shift to a greater number of mini-mills, each serving fewer customers, maybe a return to normalcy rather than a new landscape, the eastern source said.

“We learned that moving products across the US was difficult during the pandemic,” he said. “Mini-mills were supposed to be regional and have since become national.”

“Problems existed where states shut down, limiting shipments to other customers,” he continued. “A more regional network of suppliers will work much more efficiently and help keep costs down.”

National overcapacity concerns

Opinions on new and upcoming rebar capacity have been mixed among market participants, with some expressing concern about oversupply but others pointing to the Bipartisan Infrastructure Law and other construction projects as evidence that new capacity will be absorbed into the market.

New capacity comes online at a time of weakening activity in the residential construction sector, and after scrap prices have fallen much faster than rebar prices in recent months

“New capacity comes online at a time of weakening activity in the residential construction sector, and after scrap prices have fallen much faster than rebar prices in recent months,” Fastmarkets analyst Paolo Frediani said. “We expect rebar prices to hold well below current levels in 2023.”

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), fob mill US was $48.75 per hundredweight ($975 per short ton) on November 2, down by 0.51% from $49 per cwt on October 26 and by 2.99% from $50.25 per cwt on November 3, 2021, when the price was on an upward trajectory.

Fastmarkets’ assessment for steel scrap shredded auto scrap, consumer buying price, delivered mill Chicago was last assessed at $385 per gross ton ($343.75 per short ton) on October 7, marking a $631.25 per short ton spread between the two prices.

That spread has already narrowed by 3.81% in under a month and is expected to shrink further as rebar prices fall in 2023.

While most rebar participants do not hold a bullish outlook for 2023, overcapacity is not a concern for many in terms of price deterioration.

I am optimistic that the market will absorb this for the near term

“I am optimistic that the market will absorb this for the near term,” a midwestern fabricator source said. “The chip fabrication plants use a great deal of reinforcing [bar]. I understand the current Arizona plant will use 110,000 tons and the Intel plant in Ohio is similar. If you add that to all of the infrastructure work that we will see soon enough, it’s going to be okay for a while.”

New production facilities may also enable producers to shift focus at existing mills to more specialized products, the eastern source said.

“CMC and Nucor are looking at new products: higher strength rebar, etc.,” he said. “They could focus more on those at the mills currently making rebar when the new capacity comes online.”

Additionally, independent fabrication companies need a more reliable source of supply, with mills continuing to buy and prioritize their own downstream businesses, the eastern source added.

“The bottom line is that we need the new production,” he said. “There is a lot of infrastructure work to be done to rebuild this country to modern standards — a decade worth of work at least. If we can pay for it, of course.”

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