Pro­tec­tion­ism might not help US steel in­dus­try

The Charlotte Observer (Sunday) - - Business - BY ALAN RAPPEPORT New York Times

Pres­i­dent Don­ald Trump has latched on to the idea of us­ing steel to build his wall along the south­ern bor­der, prais­ing him­self for ful­fill­ing two cam­paign prom­ises at once: keep­ing out il­le­gal im­mi­grants and re­sus­ci­tat­ing a strug­gling in­dus­try.

“They were do­ing very poorly when I took of­fice, and now they’re do­ing very well,” Trump said of U.S. steel-mak­ers be­fore board­ing Ma­rine One this month. “Our steel in­dus­try was dy­ing, and now it’s very vi­brant.”

But in the 10 months since the Trump ad­min­is­tra­tion im­posed 25 per­cent tar­iffs on steel im­ports, prices in the United States have now fallen back to lev­els last seen be­fore the tar­iffs were an­nounced March 1.

Hir­ing in the steel sec­tor re­mains stag­nant, in part be­cause new mills have be­come more re­liant on au­to­ma­tion. Even with the open­ing and restart­ing of sev­eral mills last year, di­rect steel in­dus­try employment was 146,300 as of Novem­ber – 4 per­cent lower than it was four years ago, ac­cord­ing to the Amer­i­can Iron and Steel In­sti­tute. In­dus­try an­a­lysts es­ti­mate that steel com­pa­nies made 50 an­nounce­ments of plans for new mills and in­vest­ments last year and that three dozen plants were built or restarted.

In­vestors are in­creas­ingly wary about the in­dus­try’s long-term strength. Stock prices for some of the na­tion’s big­gest steel man­u­fac­tur­ers dropped by as much as 47 per­cent in 2018 amid fears of slow­ing global eco­nomic growth and the po­ten­tial for Trump to reach trade deals that re­move the tar­iffs.

“We fully ex­pect the play­ers in the steel sup­ply chain to have weaker years in 2019,” said Philip Gibbs, a met­als an­a­lyst at KeyBanc in Ohio.

The Trump ad­min­is­tra­tion im­posed sweep­ing steel and alu­minum tar­iffs on trad­ing part­ners like Europe, Canada, Japan and Mexico, say­ing it was try­ing to pro­tect U.S. se­cu­rity by pre­vent­ing a flood of cheap met­als into the United States. The tar­iffs, which went fully into ef­fect in June, ini­tially goosed steel prices in the United States, which jumped more than 50 per­cent af­ter it be­came clear that the tar­iffs would re­ally be put in place.

Trump has rou­tinely pointed to the ris­ing prices as a boon to U.S. steel com­pa­nies. But the price spike ul­ti­mately hurt de­mand as in­dus­tries that rely on the metal, like au­tomak­ers and home builders, strug­gled to ab­sorb the ris­ing costs or passed them on to cus­tomers.

Cater­pil­lar, the farm equip­ment man­u­fac­turer, said last year that it would face $200 mil­lion in ad­di­tional costs be­cause of the steel tar­iffs. Gen­eral Mo­tors slashed its prof­its fore­cast for 2018 be­cause of higher steel costs. Many busi­nesses chose al­ter­na­tive ma­te­ri­als or de­layed in­vest­ments, putting pres­sure on steel prices, which have since fallen.

Ac­cord­ing to S&P Global Platts, prices for U.S.-made hot-rolled coil steel, the in­dus­try bench­mark, jumped 41 per­cent in the first half of 2018 and then fell about 21 per­cent from that peak in the sec­ond half of the year. That trend is likely to con­tinue this year.

“Steel prices re­main un­der pres­sure to be­gin 2019,” said Michael Fitzger­ald, a met­als pric­ing spe­cial­ist at S&P Global Platts. “Typ­i­cal sea­sonal im­prove­ments fol­low­ing the slower hol­i­day pe­riod are yet to take hold as do­mes­tic steel buy­ers no longer fear a sup­ply crunch.”

U.S. busi­nesses and trade groups have re­peat­edly urged the Trump ad­min­is­tra­tion to re­move the tar­iffs, ar­gu­ing they hurt do­mes­tic com­pa­nies, not com­peti­tors, and will ul­ti­mately un­der­cut eco­nomic growth.

“Tar­iffs are taxes paid for by Amer­i­can fam­i­lies and Amer­i­can busi­nesses – not for­eign­ers,” said Thomas J. Dono­hue, pres­i­dent of the U.S. Cham­ber of Com­merce.

U.S. steel-mak­ers are feel­ing the pres­sure. De­spite strong earnings in 2018, the stock prices of steel com­pa­nies have been in a deep slump as in­vestors fret that they are be­ing propped up by gov­ern­ment sup­port that will be tem­po­rary. In the last year, shares of AK Steel are down 56 per­cent, US Steel is down 46 per­cent, Steel Dy­nam­ics is down 29 per­cent and Nu­cor’s stock is down 18 per­cent.

John J. Fer­riola, chief ex­ec­u­tive of Nu­cor, said that the fall­ing stock price is head-scratch­ing be­cause he be­lieves that the in­dus­try is on solid foot­ing. While Trump’s tar­iffs have pro­vided a “tail wind,” a strong econ­omy, tax cuts and anti-dump­ing mea­sures put in place by the Obama ad­min­is­tra­tion have re­vived the steel in­dus­try, Fer­riola said.

“There’s a lot of dooms­day talk about the tar­iffs and a lot of mis­in­for­ma­tion,” Fer­riola said. “I keep hear­ing about how it is driv­ing down de­mand and putting our cus­tomers out of busi­ness. We had a record year last year, and many of our cus­tomers also had a record year.”

Nu­cor an­nounced last week that it plans to build a $1.35 bil­lion steel plant in the Mid­west. How­ever, trade ex­perts and steel an­a­lysts worry the ad­di­tional ca­pac­ity could drive down steel prices even fur­ther and ques­tion whether such projects will even­tu­ally be scrapped if the econ­omy cools.

In the near term, the steel in­dus­try’s best hopes for a mean­ing­ful lift would be Trump and Congress join­ing forces on ma­jor in­fra­struc­ture leg­is­la­tion that would keep Amer­ica’s steel mills churn­ing.

With such move­ment un­likely amid par­ti­san grid­lock in Washington, some are hang­ing their hopes on the pos­si­bil­ity of a bor­der wall built with steel slats or, as Trump re­cently sug­gested, “steel that has con­crete in­side.” Ac­cord­ing to an anal­y­sis con­ducted by the Amer­i­can Iron and Steel In­sti­tute, the in­dus­try’s lob­by­ing group, an all-steel bar­rier along the bor­der could con­sume as much as 3 mil­lion tons of steel.

“If they de­cide to build a bar­rier and de­cide to make it out of steel, the in­dus­try stands ready and ca­pa­ble and more than able to pro­vide the steel and as­sist in the con­struc­tion,” Fer­riola said.

‘‘ TYP­I­CAL SEA­SONAL IM­PROVE­MENTS FOL­LOW­ING THE SLOWER HOL­I­DAY PE­RIOD ARE YET TO TAKE HOLD AS DO­MES­TIC STEEL BUY­ERS NO LONGER FEAR A SUP­PLY CRUNCH. Michael Fitzger­ald, a met­als pric­ing spe­cial­ist at S&P Global Platts

TODD SPOTH NYT

Amer­i­can steel man­u­fac­tur­ers got an ini­tial boost from Pres­i­dent Don­ald Trump’s tar­iffs but have since seen their share prices de­cline and steel prices fall.

MAD­DIE MCGARVEY NYT

Donna He­witt and her brother, Randy Beymer, eat break­fast Jan. 10 at the Cor­ner Cafe in Park­ers­burg, W.Va., where even some fur­loughed fed­eral work­ers backed the pres­i­dent’s bor­der wall. An all-steel bar­rier could con­sume as much as 3 mil­lion tons of steel.

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