Foreign Steel Keeps Flowing Into U.S. Despite Tariffs
U.S. tariffs on imported steel are delivering higher profits for steel companies but haven’t changed the country’s dependence on foreign-made steel.
Foreign steelmakers have been subjected since March to 25% tariffs in the U.S. Instead of isolating imported steel as the most expensive in the market, domestic steel producers have raised their prices by as much or more, moves that have generated higher profits for those steelmakers and driven up costs for U.S. manufacturers. Foreign steel’s share of the steel market remains significant, and the U.S. continues to be the world’s largest market for imported steel.
“It’s made the existing companies more profitable, but there hasn’t been fundamental change yet,” Kirk Murray, vice president of Houston-based SeAH Steel America Inc., said about the tariff.
Flush with cash, some U.S. steelmakers, including Nucor Corp. and Steel Dynamics Inc., are planning to expand or build new plants and grow payrolls. While the new capacity could muscle some imports out of the market, it also could put pressure on older U.S. mills that are more expensive to operate.
U.S. steelmakers don’t produce enough steel to meet domestic demand. Imports fill more than a fifth of the nation’s steel supply. The tariffs have made steel more expensive in the U.S. than almost anywhere in the world. The benchmark price for hot-rolled coiled sheet steel is up 22% in the past year at $760 a ton, 70% higher than the price of sheet steel in some other countries. That makes selling steel in the U.S. appealing to steelmakers in Europe and Asia, even after tariff and transportation costs.
“Pushing the price up has just encouraged the imports to come in,” said Mike Locker, president of New York-based steel consulting firm Locker Associates Inc.
Lex Group, a Chicago-based steel processor and distributor, has continued to sell steel from Germany, Vietnam and other countries subject to the tariff to U.S. manufacturers.
“The foreign mills can pay the tariff now and still make money,” said Lex Group regional president Bill Douglass.
Two million tons of finished steel were imported to the U.S. in October, according to the American Iron and Steel Institute trade group and the U.S. Commerce Department, a 7% increase from September. Imports are down 13% in the year through October from a year earlier.
Domestic steel production, meanwhile, has risen 5% in 2018 from last year. Between April and September steel production averaged nearly 8 million tons a month, the most since 2014, the steel institute said.
Some industry analysts say steel companies are at risk of adding capacity that is dependent on steel prices staying at current sky-high levels. Manufacturing activity in the U.S. has shown signs of slowing recently. General Motors Co. , a major steel consumer, said Nov. 26 that it would discontinue several car models, close U.S. plants, and eliminate nearly 15,000 jobs. Steelmakers are counting on rising sales of high-value sheet steel to GM and other auto makers to propel growth.
Falling oil prices, slowing economic growth and the rollback of the 25% tariff on foreign steel also could push the steel industry into its next slump.
Shares in most U.S. steel companies are trailing the broader market this year, as investors fixate on the short-lived potential for the tariff. Shares in U.S. Steel , AK Steel Holding Corp.and Steel Dynamics all dipped to their lowest price in a year last week in the wake of GM’s announcement and broader concerns about the industrial economy. Steel stocks took another battering in Tuesday’s broad-market selloff triggered by investors’ anxiety about U.S. economic growth and doubts about the prospects for a trade deal between the U.S. and China after a 90-day truce to trade hostility was announced over the weekend.
The higher prices have revived profits for U.S. steelmakers. Net profit at North Carolina-based Nucor Corp., the largest U.S. steel
U.S. Steel Corp. is profitable this year after losing money for most of the past 10 years.