The past, present and future of tariffs, steel, service centers and fabricators
By Kaylee Swearingen, Marketing Specialist, Mazak Optonics Corp.
Since entering The Oval Office, President Trump has implemented many new policies for the United States. One of these impactful decisions was announced through the President’s Twitter in March 2018. Trump’s decision was to set tariffs of 25 percent on imported steel and 10 percent on aluminum which was put into effect in June 2018.
The purpose of these tariffs was to get companies to buy more American metals, give suffering steel service centers a boost and reduce the amount of cheap imported steel being dumped into the United States.
What has happened since implementing these tariffs and where are we at now? These questions are answered differently depending where you stand in the metals industry.
Increase and decrease, steel service center success
If you are a US steel mill or service center, you are loving the tariffs. The group has seen almost a five percent increase in shipments during 2018. With shipments on the rise, steel imports were down 11.5 percent in the year and 13.1 percent from 2017. Most recently in December 2018, steel imports were down a massive 20.4 percent. Clearly the tariffs have successfully reduced the amount of imported steel.
According to an interview with Metal Center News, Paul Totten, COO of Totten Tubes, stated, “It felt like we were always hustling to keep material on the floor, but when it was all said and done, we really didn’t have any shortages or problems getting material.”
With the last year’s success, many producers are going into 2019 restarting shuttered mills, expanding existing plants and building new ones. There is no denying that the tariffs have improved business for steel service centers and suppliers.
Thomas Gibson, president and CEO of the American Iron and Steel Institute (AISI) said, “The Administration’s trade actions and tax and regulatory reform policies, in addition to the strong economic climate enable by those policies, have allowed the American steel industry to begin to recover after more than a decade of low capacity utilization and weaker earnings due to repeated surges in imports fueled by global steel overcapacity.”
Even with a record year in 2018, Mark Abernathy, manager of engineered sales at Bull Moose Tube, believes the tariffs won’t be around forever stating to Metal Center News, “We expect 232 to disappear at some point and imports to come back in. We hope we’ve grabbed enough market share to remain competitive and maintain the success we’re currently enjoying.”
Abernathy is not alone thinking that these tariffs will eventually disappear. Gibson agrees and warns, “But this recent progress will disappear, and our steel industry will again suffer dire circumstances, if the tariffs are prematurely terminated. The massive overcapacity in steel still exists globally.”
What about fabricators?
OK, so you are not one of the steel producers racking in cash. What has happened for the users of metals since implementing the tariffs? Luckily, tariffs and the trade war haven’t slowed down fabrication’s strong growth nor did it affect the bottom line of many companies.
The fabricated metals industry has been lifted by the United States’ economic strength. This is obvious through record high business conditions, expanding companies, new orders and backlog of orders continuing to expand to higher levels for fabricated metals.
Overall, 2018 was a major success for fabricators and they do not expect 2019 to slow down. The 2019 National Manufacturing Survey Report, by The Leading Edge Alliance, shows that 81 percent of US manufacturers expect to grow sales and 61 percent expect their overall sector to expand in 2019.
Of course, tariffs have increased metals prices but to offset these higher prices there is a strong demand for these fabricated products. With talks with China and US still continuing on, many companies now are planning ahead with their pricing by assuming the tariffs will stay in place through 2019. According to economists, currently with the high demand it is feasible to pass on the higher metal prices to customers due to the competitive environment.
So far 2019 has been consistent with meeting expectations but not exceeding them which has created a healthy yet cautious sentiment. According to the February 2019 Manufacturing ISM® Report On Business® Fabricated Metal Products saw a growth in new orders and growth in production. Also for the second straight month in 2019, there was a decrease in raw material prices. The decreases were reported in aluminum, steel, and steel-based products. These prices have metals returning to more normal levels.
One market segment that was very nervous about the tariffs was the solar energy industry. This industry seemed most vulnerable because the panels account for half of the cost associated with solar projects. But according to an article from the Institute for Energy Economics and Financial Analysis it said, “Many external factors, like global oversupply, a spike in corporate procurements and the passage of California’s SB100 law mandating 100 percent clean energy, have helps shift the market since January 2018 tariff announcement.” The article also mentioned that the solar energy market has recovered and has done very well despite the tariffs. Now the industry is actually expecting more solar than before, the 2020 forecast is 8 percent higher and 2021 forecast is 19 percent higher than the pre-tariff projection.
While 2019 has been successful thus far, many economists are cautiously optimistic about this year. But the worry now is, when with the growth stop? Luckily, it doesn’t look like 2019 will be the year. There is an estimated growth of 2.7 and 3.4 percent for the metal fabrication industry, even with the potential political and economic headwinds, the American economy is healthy.