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
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.
, 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
AK Steel Holding
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 producer, was 84% higher in the first three quarters of this year than during that period in 2017; sales climbed by 24%.
the world’s largest steelmaker and the second largest in the U.S., reported that earnings before interest, taxes, depreciation, and amortization in its North American business increased 73% in the past two quarters over the same period last year.
U.S. Steel Corp. is profitable this year after losing money for most of the past 10 years. The Pittsburgh-based company this fall restarted a pair of blast furnaces that accounts for about 16% of the company’s raw steel production capacity, or 2.8 million tons of annually. About 800 workers were called back to the company’s Granite City Works near St. Louis, which was all but idled in 2015.
is restarting an electric furnace in Ohio . There remains almost no idle steelmaking capacity in the U.S. that can be quickly returned to service.
That has spurred steel companies to make plans for new mills on a scale not seen since the financial crisis. Those plans would add 8.3 million tons of annual production capacity over the next few years, raising the current U.S. production capacity by 14%. Some of the companies planning new projects include Nucor, Big River Steel and Steel Dynamics, which last week said it would employ 600 workers at a new mill in the Southwest capable of making 3 million tons of steel annually.
President Trump welcomed that announcement in a message on Twitter. “Steel JOBS are coming back to the America, just like I predicted,” he wrote.
Steel manufacturing payrolls are up 3% from a year ago at about 145,100 workers, according to the Bureau of Labor Statistics. But just over half of the 18,400 jobs shed during the last steel market slump have returned.
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Corrections & Amplifications
Russia’s NLMK Group isn’t restarting an electric furnaces in Pennsylvania. An earlier version of this article incorrectly stated that it was.