A large portion of the metal roofing industry revolves around steel, as many different panels are made with a steel substrate, including galvanized and galvalume, like those shown in the photo.
We recently published an article about the Section 232 investigation into the effect of steel imports on U.S. national defense. At the time of publication, there was limited information made available to the public. This recently changed with the release of the investigation’s findings, recommendations, and a signed proclamation.
On March 8, 2018, U.S. President Donald Trump signed a proclamation instating a 25% tariff on imported steel (with exceptions) that will go into effect in 15 days. We discuss more detailed information about the announcement in the “Decision Made” section below.
This topic is likely to affect metal roofing, especially in regards to material pricing. We believe in the importance of keeping you updated with the present facts and want to help answer your questions.
In this article, expect to learn:
- A quick recap of what the Section 232 investigation into steel entails
- The results of the investigation & what recommendations were made to the President
- More information about the tariff proclamation signed by the President
- How this could affect the U.S. steel and metal roofing industry
Recap of the Section 232 Steel Investigation
Here’s what we know:
- Who initiated a Section 232 on steel: Current Secretary of Commerce, Wilbur Ross
- When it was initiated: April 17, 2017
- Why it was initiated: The investigation began because of a high amount of excess global steel production and therefore a large amount of steel needed to be purchased, particularly from China. This large volume came to be because foreign governments implemented subsidies and other unfair practices (such as a dumping, the exporting of goods at a much lower price than domestically charged) that keeps the price of steel low, which “distorts the U.S. and global steel markets.”
- In March 2016, import penetration of steel mill products was 25.5%. One year later in March 2017, steel import penetration increased to around 34%.
- The Section 232 investigation revolves around the concern for the national security of the United States, which can be interpreted as:
- National security requires economic security
- Economic security requires a good economy
- A good economy requires good jobs
- Good jobs require good domestic manufacturing
- In order to have good domestic manufacturing, a country might need to limit the number of imports, especially if the imported good is increasing its penetration in the market.
- Essentially, this Section 232 investigation will determine whether imported steel takes too much away from the U.S. economy.
- What options the President has for a Section 232 investigation: Quotas, tariffs, both, or neither on the imported product
Findings, Recommendations & Decision Revealed on Section 232 Investigation
While the overall U.S. steel industry sits at a 73% capacity due to the global oversupply of steel, the flat product industry in the U.S. seems to be operating at a much higher capacity than 73%.
In January 2018, the Secretary of Commerce submitted the results of the investigation conducted by the Department of Commerce to President Trump. Information is gathered via written statements and data, surveys, questionnaires, interviews, and holding public hearings.
According to the Department of Commerce, the following are the key findings of the recent steel investigation:
- “The U.S. is the world’s largest steel importer. Our imports are nearly four times our exports.
- Six basic oxygen furnaces and four electric furnaces have closed since 2000 and employment has dropped by 35% since 1998.
- World steelmaking capacity is 2.4 billion metric tons, up 127% from 2000, while steel demand grew at a slower rate.
- The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption.
- China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.
- In an average month, China produces nearly as much steel as the U.S. does in a year. For certain types of steel, such as for electrical transformers, only one U.S. producer remains.
- As of February 15, 2018, the U.S. had 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.”
Additionally, the report declares that the current capacity, or maximum output that a business can produce in a given period with the available resources, of U.S. domestic steel production averages out around 73%. In other words, approximately 27% of “plants’ capabilities and workers sit idle,” according to an article from the Cleveland Plain Dealer. To be profitable and continue the growth of capital investments, workforce, and developments, capacity needs to be at or above 80%.
While the overall U.S. steel industry sits at a 73% capacity due to the global oversupply of steel, the flat product industry (the steel products used to make up metal coils and sheets for roofing and wall systems) in the U.S. seems to be operating at a much higher capacity than 73%.
China is far and away the largest producer and exporter of steel, and the largest source of excess steel capacity, like the stacks of steel rolls shown in this photo. Photo courtesy of Business Insider.
As part of the Section 232 investigation, Secretary of Commerce Wilber Ross provides the results of the investigation, along with recommendations for the President of how to remedy the problem. The investigation found that foreign imports do pose a significant threat to U.S. national security, and further recommended three alternative remedies:
- A global tariff of at least 24 percent on all steel imports from all countries, or
- A tariff of at least 53 percent on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey, and Vietnam) with a quota by product on steel imports from all other countries equal to 100 percent of their 2017 exports to the United States, or
- A quota on all steel products from all countries equal to 63 percent of each country's 2017 exports to the United States.
- These recommendations would be in addition to those already in place.
On March 8, 2018, President Trump officially signed a proclamation saying that he is imposing a 25% tariff on steel products imported to the U.S. from all countries EXCEPT Canada and Mexico. This tariff will take effect 15 days after the signing.
What Does This Mean for the Steel & Metal Roofing Industry?
The bare steel purchased from domestic or foreign steel mills is then coated for color and added strength by metal coil manufacturers. This end product is available for contractors, architects, and manufacturers to purchase for their metal roofing or wall system projects.
A large portion of the metal roofing industry revolves around steel, as many different panels are made with a steel substrate, including galvanized and galvalume roofing panels. Depending on how much a metal coil and sheet manufacturer imports from overseas, there could be an effect on how much a manufacturer is able to produce at a lower cost, which could lead to:
- Supplementing imported steel lost (by inability to afford tariffed prices) with domestic steel
- Higher prices to compensate for tariffs paid
- Overall steel product price increases
Even though the President has signed the proclamation promising a 25% tariff on imported steel, it’s difficult to know exactly how this will affect the industry quite yet. But based on predictions and analyses out in the industry, we can predict that the price of steel will continue to rise, meaning the price of metal coils and sheets for metal roofing will also increase.
For example, let's say that “Company A” in the U.S. buys 80% domestic and 20% imported (not from Canada or Mexico) steel flat product. The addition of the 25% tariff likely results in increased prices for two reasons:
- Reason #1 – A 25% tariff will increase the price of imported steel products and therefore require Company A to pay more for the steel products needed for their production. To compensate for this money lost to the tariff, their prices will likely have to increase too.
- Reason #2 – Since Company A buys 20% of their products from other countries, the price of those materials will go up with the tariff. If Company A can no longer afford to continue purchasing those imports, they will need to supplement their lost imported steel with domestic steel, thus creating a higher demand for domestic steel. While this is great because it creates jobs and increases capacity in the U.S., it also drives up the price due to basic competitive pricing associated with supply and demand.
Wrapping It All Up
The truth of the situation is that the price of steel is going to continue to rise. How much and how soon is difficult to pin down until the tariff goes into effect (15 days after March 8).
At Sheffield Metals, we are committed to providing updates as new information is made available about the Section 232 decision on steel imports.
For additional information or to ask more questions related to the Section 232 topic, please contact us today.