The economic rebound and Trump-era tariffs have helped push domestic steel prices to record highs.
For decades, the story of American steel has been one of the painful effects of unemployment, factory closures, and foreign competition. But now, the industry is experiencing a comeback that few people had predicted a few months ago.
Steel prices hit record highs and demand surged because companies increased production amid the relaxation of pandemic restrictions. Steel manufacturers have integrated in the past year, allowing them to exercise more control over supply. The Trump administration’s tariffs on foreign steel keep cheap imports out. The steel company started hiring again.
Wall Street can even find evidence of prosperity: Nucor, the largest steel producer in the United States, is the best-performing stock in the S&P 500 this year, and the stocks of steel manufacturers have created some of the best returns in the index.
Lourenco Goncalves, Chief Executive Officer of Cleveland-Cliffs, an Ohio-based steel producer, said: “We operate 24/7 everywhere, The company reported a substantial increase in its sales in the most recent quarter.” “The unused shifts, we are using,” Mr. Gonçalves said in an interview. “That’s why we hired.”
It is not clear how long the boom will last. This week, the Biden administration began to discuss the global steel market with EU trade officials. Some steel workers and executives believe that this may lead to a final fall in tariffs in the Trump era, and it is widely believed that these tariffs have stimulated dramatic changes in the steel industry. However, given that the steel industry is concentrated in key electoral states, any changes may be politically unpleasant.
In early May, the domestic futures price of 20 tons of steel coils-the benchmark for most steel prices in the country-exceeded $1,600 per ton for the first time in history, and prices continued to linger there.
Record steel prices will not reverse decades of unemployment. Since the early 1960s, employment in the steel industry has fallen by more than 75%. As foreign competition intensified and the industry shifted to production processes that required fewer workers, more than 400,000 jobs disappeared. But soaring prices have brought some optimism to steel towns across the country, especially after unemployment during the pandemic pushed U.S. steel employment to its lowest level on record.
“Last year we laid off employees,” said Pete Trinidad, chairman of the local 6787 union of United Steel Workers, which represents approximately 3,300 workers at the Cleveland-Cliffs Steel Plant in Burnsport, Indiana. “Everyone got a job. We are hiring now. So, yes, this is a 180-degree turn.”
Part of the reason for the increase in steel prices is the nationwide competition for commodities such as wood, gypsum board and aluminum, as companies increase operations to cope with insufficient inventory, vacant supply chains and long waits for raw materials.
But price increases also reflect changes in the steel industry. In recent years, the bankruptcy and mergers and acquisitions of the industry have reorganized the country’s production bases, and Washington’s trade policies, especially the tariffs imposed by President Donald J. Trump, have changed. The development trend of the steel industry. The balance of power between US steel buyers and sellers.
Last year, after acquiring troubled producer AK Steel, Cleveland-Cliffs acquired most of the steel plants of global steel giant ArcelorMittal in the United States to create an integrated steel company with iron ore and blast furnaces . In December last year, U.S. Steel announced that it would fully control Big River Steel, headquartered in Arkansas, by purchasing shares in the company it does not already own. Goldman Sachs predicts that by 2023, about 80% of US steel production will be controlled by five companies, compared with less than 50% in 2018. Consolidation gives companies in the industry a stronger ability to keep prices rising by maintaining strict control over production.
The high steel prices also reflect the United States’ efforts to reduce steel imports in recent years. This is the latest in a long series of steel-related trade actions.
Steel history is concentrated in major electoral states such as Pennsylvania and Ohio, and has long been the focus of politicians’ attention. Starting in the 1960s, as Europe and later Japan became major steel producers from the post-war era, the industry was promoted under bipartisan management and often won import protection.
Recently, cheap goods imported from China have become the main target. President George W. Bush and President Barack Obama both imposed tariffs on steel made in China. Mr. Trump stated that protecting steel is the cornerstone of his government’s trade policy, and in 2018 he imposed broader tariffs on imported steel. According to Goldman Sachs, steel imports have fallen by about a quarter compared to 2017 levels, opening up opportunities for domestic producers, whose prices are generally US$600/ton higher than the global market.
These tariffs have been eased through one-off agreements with trading partners such as Mexico and Canada and exemptions for companies. But tariffs have been implemented and will continue to apply to imported products from the EU and China’s main competitors.
Until recently, there has been little progress in the steel trade under the Biden administration. But on Monday, the United States and the European Union stated that they have begun discussions to resolve the steel and aluminum import conflict, which played an important role in the Trump administration’s trade war.
It is not clear whether the talks will bring any major breakthroughs. However, they may bring difficult politics to the White House. On Wednesday, a coalition of steel industry groups including the steel manufacturing trade group and the United Steel Workers Union called on the Biden administration to ensure that tariffs remain unchanged. The leadership of the coalition supports President Biden in the 2020 general election.
“Removing steel tariffs now will undermine the viability of our industry,” they wrote in a letter to the president.
Adam Hodge, a spokesperson for the Office of the United States Trade Representative, which announced the trade talks, said that the focus of the discussion is “effective solutions to the problem of global steel and aluminum overcapacity in China and other countries, while ensuring its long-term viability.” Our steel and aluminum industries. ”
At its plant in Plymouth, Michigan, Clips & Clamps Industries employs about 50 workers who stamp and shape steel into car parts, such as metal struts that keep the hood open when checking engine oil.
“Last month, I can tell you that we lost money,” said Jeffrey Aznavorian, the president of the manufacturer. He attributed the loss in part to the company having to pay higher prices for steel. Mr. Aznavorian said he was worried that his company would lose out to foreign auto parts suppliers in Mexico and Canada, who could buy cheaper steel and offer lower prices.
For steel buyers, things don’t seem to be easy anytime soon. Wall Street analysts recently raised their forecasts for US steel prices, citing industry consolidation and the persistence of Biden-led Trump-era tariffs, at least so far. These two people helped create what Citibank analysts call “the best background for the steel industry in ten years.”
Nucor’s CEO Leon Topalian said that the economy has shown its ability to absorb high steel prices, which reflects the high demand nature of the recovery from the pandemic. “When Nucor is doing well, our customer base is doing well,” Mr. Topalian said. “It means their customers are doing well.”
The city of Middletown in southwestern Ohio survived the worst of the recession, and 7,000 steel production jobs nationwide disappeared. Middletown Works-a huge Cleveland-Cliffs steel plant and one of the most important employers in the region-managed to avoid layoffs. But with the surge in demand, factory activities and working hours are increasing.
“We are absolutely performing well,” said Neil Douglas, the local association chairman of the International Association of Machinists and Aerospace Workers in 1943, which represented more than 1,800 workers at Middletown Works. Mr. Douglas said it was difficult for the factory to find additional workers to recruit jobs with an annual salary of up to $85,000.
The hum of the factory is spreading to the town. Mr. Douglas said that when he walked into the home improvement center, he would meet people in the factory where he was starting a new project at home.
“You can definitely feel in the town that people are using their disposable income,” he said. “When we run well and make money, people will definitely spend in the city.”
Post time: Jun-16-2021