Steel prices are up 200%. When will the bubble pop?

Since March 2020, steel prices are up a staggering 215%. The benchmark price for hot-rolled steel hit another all-time high last week, climbing to $1,825. Prior to the pandemic, it traded in the $500 to $800 range.

What’s going on? During the early months of the 2020 shutdowns, many steel mills shut off production in fear that we were headed into a deep recession—maybe even a depression. But that drop-off in demand didn’t last long for iron ore. Early in the pandemic, stuck at home Americans rushed to spruce up their abodes. Soon, steel-heavy products like grills and refrigerators were in high demand. That quick rebound caught steel mills off-guard.

“What happened, which is similar to lumber, demand during COVID-19 was stronger than first anticipated because of switches in consumption patterns. Instead of paying for experiences and vacations, they were buying a new lawn mower, buying a new car, or white goods like appliances—which are steel intensive,” Thorsten Schier, a metals expert at Fastmarkets, tells Fortune.

As the U.S. begins to fully reopen, some pandemic-spurred trends, like lumber and steel intensive do-it-yourself home remodeling, are slowing down. That DIY pullback is, in part, helping to cause a correction in the lumber market: Since peaking at $1,515 per thousand board feet on May 28—which was 300% above its pre-pandemic price—the cash price of lumber is down 49% to $770 as of Friday. That begs the question: Why isn’t steel seeing a similar correction?

Any pullback in household durables is certainly felt by steelmakers. However, unlike wood products, steel is less dependent on DIY or new home construction—which is also cooling down a bit from its March peak this year. In fact, many industries that are steel heavy, like oil and gas, are seeing their steel demand soar right now as the economy reopens. Oil producers and refineries will only need more steel in the coming months as Americans return to air travel and their daily commutes.

“I don’t think we’ve hit the peak for steel prices. Most people in the market see strength through the third quarter, and some don’t see it getting better on the buying side until 2022 sometime,” Schier says. “It is just that supply is that tight. People are scrambling for material.”

Another factor: Consolidation. Two major acquisitions last year by steelmaking titan Cleveland-Cliffs—AK Steel for $1.1 billion and U.S. steel mills from ArcelorMittal for $1.4 billion—has essentially made the steel industry a duopoly. That firm grip by Cleveland-Cliffs and United States Steel Corporation on the market, Schier says, leaves them with little incentive to increase production. After all, creating more supply would only mean their prices would fall.

The other wildcard at play are global supply chains issues. In particular, the chip shortage which is hampering new car production. Once the chip shortage is resolved, the automotive industry is expected to ramp-up. More cars rolling off production lines, means more steel demand.

Fastmarket’s Schier was blunt with his short-term steel assessment: “There doesn’t appear to be any sign that it is abating anytime soon.”