Steel & Aluminum Tariffs: Section 232

 

Section 232 Update:  As of March 12, 2018

To Our Valued Customers,

We want to keep you updated on Section 232.  Here is what we know as of today:

On March 8th, the President signed a proclamation imposing 25% duties on many steel articles shipped into the United States as of March 23, 2018.  The tariffs apply to all countries except Canada and Mexico.  The proclamation also said that information would be forthcoming regarding an exemption process.

As you know from our prior communications, we are very disappointed with this decision and oppose these tariffs for many reasons.  (We would be happy to provide you with copies of our letters to the President and other officials imploring them not to institute these tariffs.)

We are working diligently through these uncertain times to ensure material is available.   We have trusted relationships and partnerships with both domestic and foreign mills and are working with them to do all that we can to bring you the highest quality materials when you need them, at the best value our current market can offer.

We will continue to share information with you as we receive it.  Our sales representatives are available to discuss specific material needs and are at your disposal.

We thank you for your continued business and trust in Gibbs.

Sincerely,

Bill

William J. Torres
President & CEO

 

 

 

 

 

Section 232 And What It Means

To Our Valued Customers:

Section 232 and What It Means

As of March 2, 2018

This will be the first of many communications on Section 232. As information develops, we want to keep you informed. Here is what we know as of today:

We have reviewed the US Department of Commerce Report: The Effect of Imports of Steel on the National Security (An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, as Amended, dated January 11, 2018.) A copy of the report and its attachments can be found at the US Department of Commerce website. This investigation was initiated to determine if the importation of steel and other metals is threatening our national security.

Yesterday, the President stated his intention to impose 25% tariffs on all steel coming in to the country. We have heard that there may be some countries exempted from this requirement. As we write this, we do not know the timing of the proposed tariffs.

We are very concerned that enactment of the tariffs, or any of the recommendations in the report, by the President will cause serious financial hardship to our customer base and will do more harm than good for national security. It is our intention to oppose the tariff. We will also attempt to seek some exceptions on products and countries where we think our customers will be hurt the most.

We will also argue that much more thought and analysis has to go into this issue before any decision should be made. As it stands, we feel the recommended actions are much too broad. A blanket approach fails to take the specifics of each product into account. For example, we are not aware of significant production of 17-7 rod in the USA.

As you know, we do give preference to domestic mills wherever possible. We enjoy long outstanding relationships with many domestic mills. We want them to thrive. We constantly work with them to improve all aspects of quality and competitiveness. In some cases, however, we find that domestic mills cannot meet the quality standards or quality standards at a competitive cost required by our customers. In those cases, we will buy foreign material.

We recognize that there are instances of unfair competition by foreign countries. We applaud efforts to protect our domestic steel industry. But as pointed out above, let’s approach the problem by looking very closely at each product and each country.

We encourage all of you to immediately contact your elected representatives if you share our view that the proposed actions will significantly increase your costs of doing business and limit the competitiveness of US manufacturing.

We know that you will have many questions on the cost and availability of material. We are diligently looking at all of our items. It will be difficult for us to provide answers until we have more information on the timing of the proposed tariffs.

We will keep updating you as we learn more information.

Sincerely,

William J. Torres
President & CEO

Carbon Steel Prices Expected To Rise Soon

Carbon Steel Wire Prices to Rise Soon Due to Factors Related to Increased Costs

By: John Mintun

There are very significant price increases coming for carbon wire products. Over the past few months our rod mills have experienced a number of increases in their costs that have become too burdensome to absorb and, as a result, have been passed along to our wire producing sources. The majority of our domestic sources have published price increase letters to us, and because of the nature of these increases, they will need to be passed along.

Historically, when the calendar turns to a new year, our domestic sources are generally looking for increases based on scrap costs.  January usually starts the cycle. The difference in 2018, compared to many of the proceeding years, is that these initial increases are not based on the fluctuation of scrap pricing.  In fact, scrap movement had been the only justification the rod mills used over the past several years to move on pricing. This year is very different. The following article shows the causes the rod mills are using to justify price increases.

Get a Price on Carbon Steel Spring Wire

Graphite Electrodes and Needle Coke

In the steel making process, (it should be pointed out that steel is the most recycled product in the world) scrap is melted down along with other fortifying elements to produce new steel.  Graphite electrodes are used in the process to get the scrap to melt to above 3000 degrees Celsius.  These electrodes are a necessity whether you are making carbon steel or stainless steel in an electric arc furnace. In the late summer and early fall, a shortage developed on electrodes. The three major contributing factors were a consolidation of domestic producing plants, changes in environmental law in China and, more importantly, a shortage of a key ingredient of these electrodes called needle coke.

Needle coke is produced as a by-product in the petroleum industry. It is a process heavy (time consuming) product that involves baking and re-baking the “pet-coke” until it becomes needle coke. One of the larger producing facilities in Texas sustained significant damage during Hurricane Harvey, shuttering production for several weeks.

During this time, costs for the graphite electrodes surged from $1.00/lb. to $16.00/lb.. Most mills buy the graphite electrodes on a yearly contract.  Fortunately, most of the mills were protected on price until the end of 2017. Price had retreated during the negotiation period; however, the costs are still much higher for the producing mills than in previous years.

At this point it appears that the carbon mills are putting this into the base price while the stainless mills are including it in their surcharges, if applicable.

Freight

With the economy improving at the same time a driver shortage, as well as, new government regulation on how long a driver can drive, has created capacity constraints. The mandatory use of the Electronic Logging Device (ELD) may prove to be problematic for drivers, as it applies even when they are waiting to be loaded/unloaded. This will now count against their daily allotted time. As a result, pricing is on the rise and the mills are suggesting again, these are costs that add to their increased production costs.

Trade Cases

Another factor putting the wind at the rod mills back is the fact that the domestic produces, Nucor, Keystone, Gerdau, and Charter, have pursued 13 countries for duties on imported rod. To date, the Commerce Department has ruled primarily in favor of establishing duties. This has eliminated a great deal of foreign rod coming in to the US, as there is a fear duties may be retroactively applied to the importers.

Also, the Trump administration is still investigating a ‘232 case’ on all steel products. This is an effort to prove that foreign steel impacts our national security. A decision to pursue or drop 232 is scheduled to be made by January 16th.

These two protectionist measures add to the confidence of the rod mills that they can successfully increase pricing as the importation of foreign material decreases.

What does this mean?

The wire mills, captive to the increase in rod costs, are mostly in lockstep and are seeking increases in mid-January for around $4.00/cwt.  As a result, we will be forced to raise our pricing accordingly.

Also, as these current increases are not based on scrap. It should be pointed out that scrap has recently increased and the mills are pointing to this for potential further increases for February/March.