U.S. Steelmakers Press Their Luck With Price Increases
April 10 2017 - 6:29AM
Dow Jones News
By Bob Tita
U.S. steelmakers moved fast to raise prices after new tariffs
were levied on some foreign competitors last year, but the quick
increase has alienated some buyers and threatens to short-circuit a
steel-market rebound.
Domestic steel companies have raised prices by as much as 50% on
popular types of steel in recent months. That has boosted their
profits, but troubled customers who say they can't afford the
higher cost. Steel users say they are looking for cheaper
alternatives from countries unaffected by the tariffs.
"We can't pass along this kind of increase to our customers,"
said Stuart Speyer, president of Tennsco Corp. a Tennessee-based
manufacturer of steel shelves and file cabinets. He said his
suppliers have raised steel prices seven times since October,
adding about $180 to the cost of a ton of steel.
The U.S. government imposed duties on dozens of foreign steel
producers found to be receiving unfair state aid or setting prices
below the cost of production. Tariffs of more than 500% were levied
on some products from China, the world's largest steel
producer.
A big increase in steel production capacity overseas disrupted
the U.S. steel market. When demand weakened in major foreign
markets, such as China, steelmakers maintained production by
accelerating exports to the U.S. and cutting prices on the steel to
attract customers. While steel customers benefited, domestic steel
producers idled plants and laid off workers amid the sliding
prices. But when the tariffs negated cut-rate supplies, U.S. steel
producers bounced back. Imports' share of the steel market in the
U.S. fell to 25% last year from 29% in 2015.
Domestic producers have used their improved leverage to increase
their prices. Ohio-based AK Steel Holding Corp., for instance, has
announced three price increases for its carbon steel products this
year following on nine in 2016. Other producers in the U.S.,
including U.S. Steel Corp., ArcelorMittal SA and Nucor Corp., have
raised prices too, according to analysts. AK Steel, U.S. Steel and
ArcelorMittal declined to discuss their pricing strategy.
Nucor spokeswoman Katherine Miller said the price increases were
in order, after cheap steel depressed the domestic market. "The
situation was unsustainable," she said. The duties, she said,
"allow pricing to be determined by market forces and not be
distorted by foreign government subsidies."
Last month, North Carolina-based Nucor said its first-quarter
profit would be between $1.10 and $1.15 a share, up from 27 cents
for the same quarter last year.
U.S. steel consumption in the first two months of the year was
up nearly 9% from a year earlier, but some analysts say producers
in the U.S. misjudged demand in raising prices aggressively.
"Demand is OK, but it's not as strong as it needs to be to support
the price increases we've seen," said Becky Hites, president of
steel market consultancy Steel-Insights LLC in Atlanta. She expects
steel demand to weaken later in the year.
The tariffs on steel haven't blunted imports entirely. Steel
imports for January and February rose nearly 2% from a year
earlier. "There are dozens of countries that ship steel into the
U.S. that have no tariffs," said Kevin Dempsey, vice president for
public policy for the American Iron and Steel Institute.
Steel imports from Vietnam, for example, rose more than 300%
last year. U.S. companies have accused foreign producers facing
tariffs of using Vietnam to funnel their steel to the American
market duty-free. The companies asked the Commerce Department in
September to investigate. The case is pending.
Analysts warn that higher prices in the U.S. will eventually
drive down steel demand if U.S.-based manufacturers start losing
business to foreign competitors who can buy cheaper steel in their
countries and export finished products to the U.S.
President Donald Trump's desire to make U.S.-made products more
competitive globally also could be undermined. Passing on higher
U.S. steel costs in exports is difficult when foreign companies
have access to deeply discounted steel, said Hale Foote, president
of California-based Scandic Springs Inc. His company, which makes
stamped springs and other steel parts, has seen costs for U.S.-made
stainless steel rise 20% in four months.
"It really puts U.S. metal stampers in a pickle," Mr. Foote
said.
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
April 10, 2017 06:14 ET (10:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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