Manufacturers’ View of 232: ‘Thank Goodness Demand is So Strong’

“Just let us know what you’re going to do so we can plan our business,” said Chris Shipp, expressing a common sentiment. Shipp is Vice President of Sales at Priefert Steel, a Texas-based service center and manufacturer of ranching equipment.

Shipp says the service center side of his business has been the most affected by the tariffs. “Supply is very tight, especially in the South and especially on hot roll,” he said, absent the normal flow of imports. Mill lead times are extended to mid or late June.

Priefert used to buy 60 percent import and 40 percent domestic. In less than a year, that formula has flipped to 80 percent domestic. “We entered the year with three new domestic mill contracts. We have prepared for the worst-case scenario from a supply perspective and I am glad we did,” Shipp said.

Despite the 40 percent rise in steel prices since last fall, demand remains strong across the board, allowing service centers like Priefert to pass along most of the cost. It’s the steel users that are really feeling the pain, Shipp says. “For my customers, the small OEMs, fab shops and stampers, the rapid rise in steel prices has really hit them hard.”

Some are struggling with cash flow as they quickly outspend their line of credit with the bank. “Demand is good, but at the end of the day banks will only give so much credit, especially to small-sized businesses.”

Shipp said his company’s biggest challenge, with mill lead times extended and trucking capacity tight, is delivering customers’ orders on time. Adding to the strain on logistics is the strengthening energy market. With oil near $70 a barrel, demand for hot rolled to make OCTG is on the rise. “The tubular guys will continue to run strong, which means hot roll will be tight. I don’t see any relief in sight for hot roll,” he said.

Like most others, Shipp is anxiously awaiting the Trump administration announcement on Tuesday. Whether the tariffs are reimposed or the exemptions are extended, the supply chain has already been disrupted. “A lot of damage has been done even if the tariffs do go away. It will take a while to recover,” he said.

Meanwhile, Shipp has begun to see foreign offers coming in for the summer. With domestic prices for hot rolled near $900 a ton, foreign mills can ship steel to the U.S., pay the tariff, and still be competitive. Ordering foreign-made steel in the current political environment is a risky proposition, though, he noted. “Many expect prices to soften, so the risk may be too great to look at import right now, especially before we see what happens May 1,” he said. “But the challenge with my company is supply, so we might have to take on some of that risk. Demand is strong, and at the end of the day I need more steel.”

One manufacturer of swimming pools, who requested anonymity, said the tariffs have caused “chaos and havoc” in his part of the market. The price of galvanized steel has risen so far so fast that it has put his company at a competitive disadvantage to pools made of polymer materials. “Some of our tons are at risk and will forever be lost to polymer pools at these prices,” he said. His company has put all capital spending and hiring on hold until the market regains some clarity.

Behlen Mfg. Co., Columbus, Neb., manufactures building products, fabricated parts and grain storage systems. Despite the tariffs and the sharply rising steel prices, the company has seen steady improvement in demand over the last six to eight months, said President and CEO Phil Raimondo. But he believes the high steel prices will eventually wear on demand. “If all the tariffs stay in play, it will be a huge inflationary challenge. I see our customers and their end-use customers balking at the pricing. So, I think it will have a longer-term impact on demand.”

Raimondo hopes the administration’s announcement on the tariffs brings some stability to the market. “Most of our customers can adapt to a hot rolled price in the $680-$760 range. We can operate pretty effectively there. But we are way above that number right now, so we don’t have much of a choice but to pass that on.”

When the tariffs slowed the flow of foreign products, Behlen was relatively unaffected as it sources nearly all its steel domestically. So far, the company has not run into any issues in terms of availability, but it remains a big concern. “We are preparing for every alternative. We are trying to think through a lot of scenarios we never would have worried about last year or the year before,” Raimondo said.

He believes the steel tariffs may have succeeded in giving the Trump administration some leverage in other trade negotiations, such as NAFTA. He looks forward to a time when the tariffs are no longer needed. “I’d like to see positive bilateral trade agreements. If we could get a more level playing field with all the countries we trade with, it would be a huge home run for everyone. Then the tariffs could be adjusted accordingly.”

Behlen has been more cautious on the hiring side due to all the market uncertainty, though it gave employees a raise in anticipation of the windfall to come from tax reform next year. “We just felt that was something we needed to do for our people,” Raimondo said.

The strong dollar is another issue. “Even though the dollar is weakening, it is still stronger than it was two or three years ago, which is not helping our export business,” he added.

The U.S. economy and steel demand have been healthy enough to compensate for the inflationary effects of the tariffs, at least so far. “But that does not mean we aren’t scared to death about six months from now,” Raimondo said.