Tariffs May Impact American Steel Industry Less than Fuel, Commodity Prices

Despite the declining market share of steel imports following recent industry trade cases that helped boost prices and capacity utilization somewhat, overall steel volumes could remain weak without a recovery in commodity prices.

That may be the case despite the fact that energy, machinery and equipment each account for only about 10% of steel shipments, according to a June 1 report from Fitch Ratings. “Fitch believes steel producers leveraged to autos and construction will benefit more from the improved price environment than producers leveraged to energy and machinery and equipment,” economists with the ratings agency wrote.

The U.S. International Trade Commission is currently investigating accusations by U.S. Steel Corp. against Chinese makers; while earlier this spring, the U.S. imposed tariffs of nearly 266% on cold rolled steel and corrosion-resistant steel from China and elsewhere in response to producers selling these products below cost to gain market share. U.S. steel makers have hoped the tariffs would ease a market slide brought on in part by slumping oil, mineral and agricultural prices.

These price declines have been followed by plunging steel demand for machinery going to related industries. Caterpillar, for example, has reported reduced retail sales of equipment to the oil and gas industry, as well as the North American resource industry, down by 34% and 21%, respectively, year-over-year. Other large equipment manufacturers have reported similar sales declines.

Steel shipments to the construction industry make up about 40% of steel shipments, while shipments to the automotive industry make up 26%, Fitch Ratings said. Construction has been recovering since the Great Recession, as has automobile demand, though a report on U.S. auto sales from Autodata Corp. released June 1 found Americans bought 1.54 million automobiles in May, down some 6% from a year ago.

Indeed, U.S. steel consumption fell 10.6%, year-over-year, in 2015, while Fitch calculated steel consumption dropped an extra 6.6% in the first three months of 2016 compared with 2015.

- Nicholas Stern, editorial associate

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