We're going to quickly discuss:
- the new section 232 tariffs
- what they mean for the metals industry, and
- what Boyd Metals is doing to adapt to these changes
The Section 232 Tariff
Section 232 is a provision of the Trade Expansion Act that allows the U.S. government to evaluate the effect of imports on national security.
The Commerce Department released reports from this evaluation in February. It was concluded that the quantity of steel and aluminum imports “threatens to impair the national security". Simply put, it is problematic for us to be fully reliant on a foreign supply of materials that are critical to the safety and defense of our nation.
In the United States, steel imports were nearly four times greater than our exports. Additionally, 90% of the aluminum being used in the US was being supplied by other countries.
On March 8th, 2018, President Trump issued tariffs of 25% on steel products and of 10% on aluminum products which had been identified in the reports. These tariffs do not apply to imports from Canada or Mexico. Since then, the administration has exempted a few other countries, including Australia and the European Union.
What does this mean for the metals industry?
The short-term effects of the tariffs have been dramatic. End users are scrambling to ensure a steady source of supply for their operations. Because of this, we have seen some panic buying in the market, although the initial levels of shock and awe seem to be subsiding.
Regardless, business conditions and manufacturing were already in a good place before the tariffs were announced. The instant decrease in imports and resulting increase in domestic demand have served to drive up prices dramatically in a short period of time. Mills lead times have moved out virtually overnight and mills are struggling to keep up.
We are indeed in a period of transition. There are some significant challenges associated with this transition, so let's talk about those.
As businesses begin to adjust, we are seeing a further tightening of the supply in the marketplace. Domestic companies that had relied heavily on foreign materials are looking for new suppliers to fill large gaps in their inventory. Distributors are getting requests from new potential clients' businesses at a high rate.
Those sound like good things, and they can be, but only if they are managed carefully. Allowing new customers to buy up huge amounts of inventory that cannot be readily replaced could cause a lot of other problems. That is especially true if loyal existing customers are suddenly unable to depend on their regular supplier for their materials.
This situation is tough for distributors, but it is difficult for metal manufacturers as well. They are having a hard time keeping up with the skyrocketing demand and their product is flying off the shelves.
Some domestic mills are expanding their operations to help compensate, but projects like that don't happen overnight. Mill lead times are long and, if anything goes wrong, the dates for your order could be pushed back dramatically. Orders for many common products, such as sheet and coil, can’t even be quoted or placed because of market uncertainty and massive backlogs.
Fortunately, there isn’t a shortage of raw materials in the US. We anticipate that the situation will begin to normalize as steel manufacturers adjust their output rate. As tariff negotiations with foreign governments are resolved, we should see additional improvements.
How Boyd Metals is responding
Clearly, a lot is changing. Fortunately for us at Boyd Metals, the changes in the industry come with a lot of positive possibilities for the future.
We have a terrific opportunity to take advantage of a growing economy and new orders, but that comes with many difficult challenges. In situations where a lot of sudden change is happening, it takes wisdom and foresight to make the best decisions for the company and our customers.
The bottom line is this: Boyd isn’t going to sacrifice the quality and reliability that our existing customers rely on. We are not going to take advantage of profitable orders that would exhaust our supply or make it difficult to fulfill our regular orders.
We’re going to continue taking care of the people that have always taken care of us - even when we have to say no to big orders. We are not going to sacrifice our customer base for a short-term windfall.
“Our customers are the backbone of Boyd Metals’ success. We can’t prosper without them; we can never take them for granted.” - Tom Kennon, President
Thanks for reading!