2020 saw steel production in many parts of the world struggle badly. In January 2021 the World Steel Association reported that, overall, global crude steel production in 2020 decreased by 0.9%. But figures for individual regions varied wildly. While China, Russia and the Middle East saw increases of 5.2%, 2.6% and 2.5% respectively, it was a different story in the West, with the EU seeing a decrease of -11.8% and the USA -17.2%. Other major players also saw big drops in production, Japan and India, for example, seeing contractions of -16.2% and -10.6% respectively. Those big decreases in production were the result of steelmakers anticipating a major drop in demand for steel. But did they make the right call?
Steelmakers caught unawares
COVID-19’s earliest and most serious manufacturing casualties included the automotive and aviation sectors, both major steel consumers. The response of steelmakers – completely understandable – was to reduce or shut down production. But they didn’t bargain for stuck-at-home consumers. Unable to spend their hard-earned cash on evenings out or on holidays, they rushed to purchase new household appliances and garden equipment instead. Items heavy in steel such as washing machines, ovens and lawnmowers saw demand peak. The automotive industry picked up much earlier than expected too. Steelmakers were caught unawares and are still playing catch-up. The result of this has been a shortage of steel and a major hike in prices, with US Midwest domestic hot-rolled steel futures, for example, up nearly 300% in August 2021, as compared to March 2020.
Steel accounts for 83% of overall cost of fixed infrastructure automation equipment
The shortage of steel, and resultant price increase has put pressure on the warehouse automation market, particularly on the market for fixed infrastructure solutions where steel can account for up to 83% of the overall cost. These solutions are, therefore, highly sensitive to steel prices and the current high price of steel is hobbling returns on investments for companies purchasing fixed infrastructure automation kit. Concurrently, as it can take several months to procure steel, the lead time from order to completion for fixed infrastructure solutions has been significantly extended. Warehouse automation system integrators have said that the steel shortage is having a greater impact on their business than the lack of semiconductor chips.
A sellers’ market. But for how long?
Nonetheless, in spite of high prices and long lead times, fixed infrastructure warehouse automation is a tried and tested solution and continues to be popular with warehouse operators as they face increased pressure caused by the burgeoning e-commerce sector. So there is another angle to this story. High volumes of business in warehouses coupled with labour shortages and the drive to increase the speed and efficiency of throughput has meant that system integrators have experienced high levels of demand for fixed solutions, to the extent that they have found themselves in a position where they can pick and choose which projects to work on. End-user investors whom we interviewed described themselves as being in a sellers’ market. But how long will this last?
Our research has led us to conclude that high prices and continued long lead-times for fixed infrastructure warehouse automation solutions such as conveyor-based sorters are factors which are beginning to drive interest in the mobile robot market. Mobile robots critically use significantly less steel in their fabrication and vendors are now offering solutions which, in terms of their speed of integration (often less than 6 months), the higher payloads they can handle and their flexibility of deployment, offer serious competition to their fixed infrastructure cousins. In reality, though, the simplicity and cheapness of fixed infrastructure solutions means they will account for the majority of the market for the foreseeable future. But mobile robots will continue their incursion into the sector over the longer term.
To continue the conversation about warehouse automation, get in touch with Rueben directly on Rueben.Scriven@InteractAnalysis.com