Who’s looking out for the metal fabricators?

Metal fabricators are trying to take advantage of increased business opportunities, but they are struggling with record-high steel prices and material availability in some instances. Ending the Section 232 steel tariffs would help, but is that what elected officials have in mind? SafakOguz/iStock/Getty Images Plus

With steel prices increasing to the point where they are triple what they were last August, eclipsing $1,600/ton in May, metal fabricating companies likely will need to have some serious conversations with customers. Of course, these are discussions that they’d rather not have, but they really have no choice.

Steel prices are not going to recede significantly in the foreseeable future. According to the experts at Steel Market Update, industry observers believe some new steelmaking capacity might come online in the coming weeks, but any price relief for steel buyers would take time to manifest itself, maybe well into the second half of 2021 or perhaps even into 2022. (You can read more about where steel prices are and where they might be headed in “Record opportunities, risks in record-high steel prices."). Metal fabricators can’t continue to eat the rise in material costs, so that leads us to these difficult conversations with customers.

Scott Buehrer, president, B. Walter & Co., Wabash, Ind., described the tenuous position his company and other fabricators find themselves in: “Passing along too little of the increased costs creates operating losses and destroys capital in our business. Pass along too much and watch our customers move their purchases to suppliers outside the U.S.” The latter statement is the very unpublicized threat to the domestic metal fabricating base. While the steelmakers have their Section 232 tariffs to protect them from the dumping of low-priced steel on U.S. shores, metal fabricators don’t have anything. They are alone to fend off the rest of the world.

It’s the law of unintended consequences that comes with trying to win a trade war with tariffs. China is the world’s leading producer of steel, accounting for about 53% of the 1,870 million tons produced in 2019, according to the World Steel Association. Needless to say, Chinese companies don’t consume that much, and that overproduction is a main reason that U.S. steelmakers sought protection from subsidized Chinese steel.

Well, the Section 232 tariffs keep imported steel from U.S. shores for a couple of years, and the steelmaking companies get some breathing room—making investments and shutting down inefficient production. In the meantime, however, Chinese companies are just sending their steel elsewhere, to places like Vietnam and Mexico, where the raw material is being transformed into semifabricated goods that are then exported to the U.S. And there’s no tariff on imported fabricated products to make life a bit easier for U.S. metal fabricators.

Also, keep in mind that despite all you might have read about multinational companies looking to bring home their supply chains from overseas so that they have more control over them, unlike what occurred during the early days of the pandemic, that “reshoring” trend is not dominant. Discount store chains and online retailers don’t reward companies that consistently present them with price hikes in the name of domestic manufacturing. Cost control is king in these relationships, and metal manufacturing supply chains can move around pretty easily.

So who’s standing up for the metal fabricators as they try to absorb as much of the rising costs as they can, while still attempting to operate in a profitable manner and be a good supplier to their customers? Some voices from industry associations and elected representatives from manufacturing-heavy districts might be making some noise in support of metal fabricators, but still the $343 billion metal fabricated products sector appears to be on its own.

All, however, is not lost. If President Joe Biden can get any sort of infrastructure investment package passed, no matter the size, he and his colleagues need to realize that steel is going to be needed, and as any metal fabricator who has tried to make spot buys in the past few weeks will tell you, service centers don’t have a lot of excess inventory to offer. In short, you can’t rebuild America if you can’t find the steel to do it. Additionally, federal tax dollars aren’t going to make as big of an impact if steel has to be purchased at current price levels.

A huge sector of the U.S. economy is at risk, and some metal fabricating companies are being squeezed to the point where long-term damage is possible. We’ll say it again: The Section 232 tariffs need to end. It’s for the good of the domestic manufacturing economy today and the rebuilding of U.S. infrastructure tomorrow.