Prices for flat products increased 41% from the time the tariffs were put in place to last August, according to the composite flat products price compiled by the forecasting firm DRI-WEFA, Lexington, Mass. During the same period, the firm's composite price for long products rose just 2.5%. "The tariffs may be working too well," says John Anton, DRI-WEFA chief steel analyst.
|(Photo courtesy of Bethlehem Steel)|
But not all the price increases for flat products can be blamed on the tariffs. "The dollar has devalued about 11% since last February, making imports that much more expensive," says Anton. In addition, there was a surge in demand from buyers who had cut inventories to the bare minimum when prices were falling. The rush to build inventories back up before prices rose too high also helped trigger the spike in prices.
Prices also received a boost when the nation's third-largest integrated steel mill, LTV Corp., left the market. Although it stopped making steel at the end of last year, LTV did not completely work off its inventories until March, just when the tariffs were taking effect.
The impact of the tariffs on trade relations also became clearer during the third quarter. Both the European Union and Japan were threatening to impose punitive duties on U.S. exports to their markets. To ease trade tension, President Bush on Aug. 22 granted 178 exceptions for specific imported products, 104 over the objections of the U.S. steel industry. A product may be excepted from paying a tariff if it is difficult or impossible to obtain from American suppliers.
Despite the tariffs and an unfavorable shift in exchange rates, the volume of imports has not fallen off dramatically. "By the time we got to the tariffs, the steel industry's crisis was not volume but price," says a spokesman for the American Iron and Steel Institute, Washington, D.C. "The tariffs have not eaten into the volume of imports but have allowed domestic prices to increase so that steel is no longer sold at a loss," he says.
This price protection may be short-lived. Already there are signs that higher prices will lure more domestic capacity onto the market, driving prices down. Charlotte, N.C.-based Nucor, the nation's largest mini mill, recently purchased Trico, an idle mill in Alabama. Nucor hopes to have Trico's 2 million tons of annual capacity in operation by the end of the year.
LTV has already reopened as the International Steel Group, returning up to 4 million tons a year of capacity to the market. Through bankruptcy court, the company has reduced some inefficient capacity, won new work rules from the unions and shed the so-called "legacy costs," which are the immense financial obligations that steel companies owe their retirees due to earlier industry downsizing. This will allow International Steel to undercut other integrated steel mills on cost per ton, and therefore price. Ironically, this in turn will help negate some of the benefits the overall industry has won through the steel tariffs.
"Prices will probably come down about half as much as they went up," says DRI-WEFA's Anton. The consulting firm predicts that prices for hot-rolled carbon sheet will peak at $320 per ton in the third quarter and then fall about 16% in the fourth quarter.
The U.S. steel industry hoped to use the breather space provided by the tariffs to consolidate, so that it can better compete with imports. However, it may already be running out of time. By next March, the tariffs fall from 30 to 24%. In March 2004, they decline again, to 18%. By the next year they will expire, leaving the cycle of crisis in the steel industry to start all over again.y the third quarter of this year, the full impact on prices of new U.S. tariffs on imported steel became clear. President Bush placed a 30% tariff on most flat products, such as plate and sheet, last March 5. Most of the so-called long products, which include construction materials such as structural steel and reinforcing bar, were excluded from the tariffs. The pricing trends for the two basic types of steel products could not have been more different.