U.S. tariffs on imported steel are delivering higher profits for steel companies but have not change the country’s dependence on foreign-made steel.
Since March, foreign steelmakers have been subjected to a 25% tariff 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, generating higher profits for those steelmakers and driven up costs for U.S. manufacturers. Foreign steel’s share in the market is remains significant, and the U.S. continues to be the world’s largest market for imported steel.
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 USD 760 per ton, 70% higher than the price of sheet steel in some other countries. As a result, selling steel in the U.S. has become appealing to steelmakers in Europe and Asia, even after tariff and transportation costs.
Two million tons of finished steel were imported to the U.S. in October, a 7% increase from September. Meanwhile, domestic steel production 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.
Some U.S. steelmakers, including Nucor Corp. (NYSE: NUE) and Steel Dynamics Inc. (NASDAQ: STLD), are planning to expand or build new plants and grow payrolls. While the new capacity could muscle some imports out of the market, it could also put pressure on older U.S. mills that are more expensive to operate.
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. (NYSE: GM), a major steel consumer, said on 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 automakers 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 producer, was 84% higher in the first three quarters of this year than during that period in 2017; sales climbed by 24%.
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.