Final Thoughts

And it’s mostly a question of how high steel prices might go rather than whether they’ll rise. That’s in no small part because some of the key Trump tariff deadlines are well within current lead times for flat-rolled steel products.

How high can we go?

Case in point: The reprieve the Trump administration granted to Canada and Mexico from 25% blanket tariffs expires on March 4. And the revival of Section 232 – no exceptions, no exemptions, and stretching further downstream – begins on March 12.

I’m not going to delve into Section 301, IEEPA, or reciprocal tariffs and VATs. Lewis Leibowitz has a good summary of where things stand with those issues here.

We’ll get an early read on how far mills might push prices when Nucor publishes its list price for hot-rolled (HR) coil. With Presidents’ Day on Monday, that might not happen until Tuesday.

SMU will update prices on Tuesday evening. The high end of our price range last week was $800 per short ton (st). That was slightly above Nucor’s list price of $790/st, and on par with list prices circulated by U.S. Steel and ArcelorMittal.

We’ve seen during past market shocks that US mills haven’t been shy about increasing prices by $100/st or more from one week to the next. Does that mean we’ll see list prices of $900/st for HR this week or with the opening of April books?

SMU will update lead time data on Thursday. I wouldn’t be surprised if we see lead times stretch out because service centers, distributors, and other steel consumers sought to load up on as much pre-tariff material as possible. My guess is that mills themselves are still trying to get a handle on business that came in over the last week.

Downstream impacts: the example of PC strand

We’re already seeing the impact of Trump extending Section 232 to include downstream products. Take the example of Insteel Industries. It makes downstream goods such as prestressed concrete (PC) strand, which is used in construction applications.

I started off my career in steel covering long products. And for years Insteel has been lamenting in earnings calls and elsewhere that the downstream goods haven’t been afforded the same protections as, say, the wire rod it needs produce things like PC strand. The result: It’s been tough to pass on higher steel prices to customers who could always opt for imports instead.

That has changed. The Trump administration on Feb. 10 specifically said that PC strand would be covered by Section 232 this time. What happened next? Insteel sent a letter to customers stating that the president’s proclamation “will almost certainly impact near-term pricing of PC strand.” The company also warned that “availability” might be an issue.

Insteel predicted that PC strand prices would increase at least 25% in March because of the 25% Section 232 tariff. And they could increase more should prices rise for wire rod (the raw material used to make PC strand) or for scrap (the raw material used to make wire rod).

Why wouldn’t a similar logic apply to other downstream goods?

If history repeats

So, again, the question in the short-term is not so much whether prices will rise but by how much.

History doesn’t repeat. But it tends to rhyme. So let’s go back to the first time Section 232 tariffs were imposed.

Hot-rolled coil prices started the year at $640/st in 2018, according to SMU’s interactive pricing tool. They had jumped to $790/st by late February, following the release of a key report from the Commerce Department on S232.

Trump officially announced the 25% tariff on imported steel on March 8, 2018. And prices peaked at $915/st that summer after the tariffs were unexpectedly applied to Canada and Mexico – the United States’ closest trading partners.

Long story short: We saw a nearly 43% increase in HR prices between January and July 2018. Let’s say that were to happen again. HR started 2025 at $675/st. A 43% increase would take us to approximately $965/st. And it’s worth noting here that what’s being proposed by Trump 2.0 is far more draconian than what we saw in 2018 – at least at first glance (more on that in a moment).

What comes next?

We learned how fragile supply chains can be during the post-Covid snapback in demand in 2021. Microchips became the poster child for that issue.

I don’t see how trade actions as expansive as the ones the US is about to take don’t cause supply chains disruptions (at least in the short-term). Especially given that Section 232 will stretch further downstream and that there will be no exclusions.

Where will we see that first? Will it be in PC strand, beverage cans (let’s not forget that the aluminum S232 going to 25% without an exclusion for Canada is particularly disruptive), or something else entirely?

There has been an early exuberance in some corners around these tariffs, especially among US mills and certain service centers. Yes, steel prices should go up with the US slapping other nations with tariffs. But it’s worth remembering that they can hit back. Agriculture – a sector where the US is ruthlessly efficient and globally competitive – was hit hard by retaliation against US Section 232 and Section 301 tariffs in 2018.

Wildcards

Here’s one wildcard that’s on my mind. US HR prices have already surged well above those in the rest of the world.

Let’s say the rapid pace of gains continues. Recall, too, that there are no more quotas to constrain import volumes from places like Brazil and South Korea. If the 25% tariff isn’t prohibitive, couldn’t more steel continue to come into the US – and without the brake the quotas had provided?

Also, a lot of the price gains we’re seeing now are based on rising raw material costs, anticipation of tariffs, and restocking ahead of those tariffs. It looked like demand was starting to perk up after a slow start to the year.

Aside from restocking, is that still the case? I ask that because inflation is ticking up again and consumer sentiment is weakening. How much will the average car cost after all is said and done with tariffs and retaliation to them? How much might construction costs rise on both higher raw material (tariff) and labor costs (immigration restrictions)? In short, how do consumers respond to all the uncertainty that’s been injected into the market in such a short time?

I’d like to say that this coming week will be a little less crazy than the last few. But I wouldn’t bet on it. If there is one thing this second Trump administration is very good at, it’s delivering bigger and bigger shocks from one week to the next.

Editor’s note

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