Amazon build cuts could hit US steel industry

The US steel industry could face further headwinds in the coming months as internet giant Amazon plans to cut back on warehouse investments.

Several metals service centers have reported customers seeing cuts in order backlogs, with one reporting that Amazon-based jobs for conveyor and equipment manufacturers have been pushed back to the fourth quarter or cancelled.

A plate supplier said the Amazon cuts are the first negative fundamental in the plate market in two years, when prices started increasing.

While much of the steel consumption at warehouses is in the form of structural beams and concrete reinforcing bar (rebar), the massive structures Amazon builds also require large amounts of metal siding and other steel materials.

US steel prices have been under pressure in recent months as persistent oversupply and low lead times have dogged the market. The Argus US hot rolled coil (HRC) Midwest ex-works assessment has fallen by 17pc since hitting a near-term peak of $1,500/short ton (st) in April down to $1,250/st. Lead times have hovered around 3-4 weeks for more than a month.

In its first quarter earnings from April, Amazon said it has "excess capacity in our fulfillment and transportation network" and that in 2020 and early 2021 the company made the decision "to not let space be a constraint on our business."

The company now is working to cut back on its warehouse expenditures after overbuilding, after Amazon spent approximately $18bn on fulfillment center warehouses in the 12 months leading to 31 March.

Some steelmakers have recently made downstream investments in businesses that produce products for such warehouses.

Electric arc furnace (EAF) steelmaker Nucor has spent nearly $4.45bn on downstream businesses involved in metal buildings and warehouse services. On 16 May, the company announced it would spend $3bn on overhead door company CHI Overhead Doors. The overhead door market was valued at $5.1bn in 2021, according to a Nucor investor presentation.

The company also bought two steel racking companies and an insulated metal panels manufacturing business.

On top of this, the US is on track to add 6.3mn st/yr of new flat-rolled and plate steelmaking capacity in 2022.

By Rye Druzin