President Donald Trump’s planned 25% tariffs on steel and aluminum, set to begin March 12, were intended to boost domestic production. While U.S. mills have benefited, passing on higher prices, manufacturers that rely on these metals are caught in the middle. Midwest steel prices have jumped 12% in two weeks, while the same type of steel has risen just 6% in northern Europe and barely changed in China.

A Bain & Co. survey found 40% of executives expect double-digit increases in input costs, with 80% revising financial forecasts. Leon Topalian, CEO of steel giant Nucor, supports the tariffs, calling them the first step in Trump’s “America First Trade Agenda.”

Manufacturers relying on steel service centers or direct mill purchases are seeing orders canceled, delays, and panic buying. Nelson, whose company makes harvesting reels for farm equipment, describes being “the middle guy in the sandwich” between steel producers and large manufacturers like Deere and AGCO. He plans to pass the increased costs on.

Factory input costs are already rising, with an S&P Global survey showing a sharp increase in prices due to supplier-driven tariff hikes. The White House argues the tariffs give domestic producers “breathing room,” but smaller manufacturers like Calder say they can’t raise machine prices fast enough to keep up with surging costs.

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Tim Burenga, a member of the Association’s Board of Directors and executive at Worksaver, says the industry is seeing a “perfect storm” in material prices.

“Domestic mills took capacity out of the market this year, which dried up supply,” Burenga said. “Ports and rails are in a mess because of the container shortage, which limits quantities of foreign coils arriving in the U.S. This has allowed the steel producers to accelerate their price increases to near historic levels.”

Iron ore, the main ingredient of steel, is one of the best-performing assets in 2020. Prices for copper have risen to their highest level in almost eight years. Other raw materials, such as aluminum and zinc, have added roughly 15 percent since the end of September and 40 percent or more since mid-May. And shares of metals producers are on a tear, climbing alongside other stocks closely tied to economic growth.

“It has been as bad as submitting an order on Tuesday based on a quote from Monday, and finding out that they are no longer honoring that quoted price,” said board director Ben Hellbusch with Duolift. “Price increases are effective immediately.”

On Monday, that meant the price on structural tubing increased $100 per ton, Burenga said. He also said the market will absorb only so much in terms of a price increase.

“I’m fearful for our business and industry that this great market we are in will come to an abrupt stop,” he said. “This has happened every time raw materials increase at an accelerated pace like this.”

The climb highlights the scope of the recent market rally, which propelled major stock indexes to all-time highs. Vaccine trial results and emerging clarity on the national political landscape has lowered the level of angst on Wall Street, fueling bets that economic stimulus measures will further juice asset prices. With stocks at records and bond yields still near all-time lows, some of that money is now moving toward raw materials, the Wall Street Journal reported.

Accelerating factory activity in the U.S. and China in recent months has been a boon for metals producers. Manufacturing has so far led the world economy out of the downturn, outpacing segments still struggling with coronavirus restrictions.

Metal prices will likely receive an additional boost from a shift toward renewable energy. Green energy projects from electric-car charging stations to wind turbines use large amounts of copper and other metals, contributing to demand in the sector.

“No matter where I look, I see a price increase looming,” Hellbusch said. “It is only a matter of time before we pass it along to our customers and find out the effect it has on our business.”

Source: Wall Street Journal