In 2017, almost half of the 1.7 billion metric tonnes of steel produced worldwide came from China. Because China was such a large percent of the global steel supply, many steelmakers worldwide accused China of dumping steel into the market), thereby dragging the cost of steel down. To respond to this concern, the United States and the European Union have imposed high import tariffs on steel to protect their domestic production.

In part to respond to these tariffs, China decreased their steel production capacity, impacting the price of steel per pound worldwide and increasing steel demand from other markets. This included the European Union, Japan, India, and the United States‒which only accounted for 27% of the industry last year when combined. Therefore, it’s been suggested that steel prices may spike in the near future due to these import tariffs and the resulting decline in worldwide supply, which will not be met with a decrease in demand.

 

Steel Tariffs

In 2017, the United States was the leading importer of steel, importing just over $29 billion worth of the metal. However, recent tariffs in the United States and European Union may cause fluctuations to the steel industry. The United States recently imposed a 25% tariff on steel imported from a subset of countries (including China and India) to protect domestic steel sales. The European Union imposed a similar tariff on Chinese steel products, which are as high as 72% for steel piping.

 

 

Why Was the Tariff Put in Place?

Signed by John F. Kennedy in 1962, the trade expansion act makes possible the adjustment of tariff on import of up to 80% by The President of the United States. The tariff is an amendment made to Section 232 of the Trade Expansion Act of 1962. The decision was made due to the possible threat to national security imposed by steel production vacating the United States in recent years.

 

This tariff, while perhaps making US-produced steel more desirable to US companies (and similarly, EU-produced steel for EU companies), may reduce the ability of some companies and industries to purchase the amount of steel that their operations demand.

Moreover, some say this tariff may spark a trade war, the implications of which may reach much further than the steel industry. Currently, the European Union, who has threatened to respond with similar tariffs on other goods, has been excluded from the steel import tariff of the United States.

 

Restrictions, Supply, and Demand

Aside from import tariffs in the United States and European Union, China’s reduction in steel production capacity may lead to increasing steel prices as demand increases relative to the shrinking steel supply; this has already caused an increase in the cost of plate steel.

The recent tariffs and restrictions are not only affecting the steel industry but the base and ferrous metal markets as well. Base metals, which include all non-precious metals (such as copper, lead, nickel, zinc, and aluminum), have been volatile in recent months, and in 2018, demand is expected to surpass supply, which may lead to an increase in prices, as has been seen with steel. Moreover, ferrous metals and steel precursor materials, such as iron ore and coking coal, have seen an increase in pricing this year due to demand increases caused by the restrictions and price of steel combined with its sustained demand.

 

Steel Prices and Industry Effects

While steel demand may have picked up for some countries, including Germany and the United States, due to the changing landscape of steel production and the general increase in construction seen recently worldwide, rising steel prices may negatively affect many industries that utilize steel in construction and manufacturing.

One industry that is concerned about rising steel prices is the United States farm equipment industry, which uses steel to manufacture sturdy and reliable pieces of equipment. It was estimated that, for a hypothetical 20% increase in the cost of steel, equipment prices would have to increase 2.0–2.5% to make up the difference, which may make US equipment less competitive on a global market.

 

How will this new Tariff Affect You?

While those working in the steel industry domestically are rejoicing, many others across the country are scrambling to find a way to soften the blow of the increase in steel prices. The increase in steel prices is expected to affect nearly everyone in the United States from manufacturer to consumer.

With manufacturers paying a higher price for raw steel, consumers are expected to see anything from a can of soup to cars go up in price.

 

 

Next Steps

As we are still in the early stages of this new tariff and are not yet seeing the full effects if you are planning to purchase equipment this year consider doing so quickly before steel prices reach their height. At GK, we are planning for the event of increased steel prices and are working to ensure our customers are not negatively affected. If you are planning to upgrade your current unit or maybe breath new life into an existing piece of vibratory equipment, call GK today!

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