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Metal prices rise for US manufacturers as tariffs approach

Metal prices rise for US manufacturers as tariffs approach

In the past two weeks the price of steel Glen Calder purchases for his small machinery manufacturing factory in South Carolina has risen over 15%, but Brian Nelson's Illinois factory can't even get current prices from its suppliers.

Nelson said, "They are waiting for tariffs." Although President Donald Trump's tariffs of 25% on steel and aluminium are not scheduled to begin until March 12, their impact is already being felt by the producers and builders who rely on these metals for the production of their products. It's not good.

Trump ran on a pledge to use tariffs as a tool to boost domestic manufacturing. He also sees the additional revenue as a means to offset lost federal revenues from his tax cuts. Tariffs on imported aluminum and steel, while helping U.S. mills to increase their prices, translate quickly into higher prices for producers who purchase and process these metals into fridges, cars, and combines. The U.S. steel prices have risen in recent days. This is in addition to the gains made since Trump was elected president. According to Fastmarkets, hot rolled coils in the Midwest have increased 12% since the beginning of the month to $839 a short ton. They've also risen 20% since Trump became president on January 20. In contrast, prices of this type of steel have risen by only 6% in Northern Europe and barely changed in Eastern China since January 20, according to data provider Fastmarkets. According to a new Bain & Co. survey, 40% of chief executives and top executives expect double-digit increases to their input costs as a result of tariffs. About 80% have revised or are considering revising financial projections to reflect the increased costs. Leon Topalian was the CEO of Nucor, the largest U.S. steelmaker, and he praised Trump's plans for tariffs earlier this month, calling them the first steps of "his America First Trade Agenda." Nucor raised the price of hot-rolled coils for the fourth time in the past year.

'MIDDLE GUY' IN THE SANDWICH: Buyers usually acquire metals directly from mills, or via so-called "service centers", smaller businesses who buy metal in bulk and then process it into the forms required by buyers, like being cut to specific lengths.

Nelson, CEO of HCC, Mendota in Illinois, purchases both ways. He has not been able, at this time, to obtain price quotes from any of his usual sources. He was told by his senior buyer that mills had canceled orders, placed orders on hold and increased lead time due to the tariff uncertainty. He said that "lead times have been pushed back" because customers are panic-buying. He compares his business with being squeezed both above and below.

HCC manufactures harvesting reels, some of which are over 30 feet in length, for large combines and other parts for big reapers. HCC is stuck between steel producers and their customers, large farm equipment manufacturers like Deere or AGCO.

Nelson told us he had just spoken to a big manufacturer who asked how much of the tariff-related steel price increase he planned to absorb. I said that we'll pass the cost on to you, and you can decide whether you'd like to pass on this price increase to your customers.

The price of factory inputs is already rising. The price of factory inputs is already on the rise.

Survey released on Friday

S&P Global reported that the price index for inputs paid by companies increased from 57.4 to 58.5 in January. The manufacturing index, which rose to 63.5 last month from 57.4 the previous month, was also a major contributor. "Purchasing managers blamed tariffs and supplier-driven increases in prices for this increase,"

A White House spokesperson said that tariffs were only one part of an administration's economic agenda. This included cutting regulations, reducing energy costs, and reining in inflation. Spending cuts will also lower interest rates, and make U.S. Steel and Aluminum producers more competitive.

The White House spokesperson said that the tariffs were meant to provide breathing space to domestic producers of aluminum and steel, and to help them reach their full capacity. The price of aluminum and steel will increase as a result.

Glen Calder is resigned to the fact that he will have to absorb these costs. Calder Brothers in Taylors produces paving machines worth $200,000 that are sold by asphalt contractors to municipalities and for tasks like paving subdivision streets and parking lots.

He's already seen a spike in his steel prices over the past few weeks and has been warned that he can expect to see more.

In an interview on February 17, he stated that "as of this morning my steel prices have increased 15.2% since the beginning" of the month. "My machine prices aren't 15.2% higher, I can assure you." Calder's factory of 100 employees competes with four other domestic firms. He said that business was slow, which he attributed to customers who were hesitant to purchase new machines due to still-high interest rates.

Calder said, "This isn't the time to raise my prices."

More than just metal steel isn't the only thing that causes him problems. The large U.S. manufacturer Cummins sells him heavy-duty engines, but the model that is designed for his machines was produced in China by the Indiana-based firm. Trump's administration increased tariffs against China by 10% in the first month of this year.

As manufacturers prepare for the future, they rely on the memory of the last time that the U.S. imposed new tariffs on metals in 2018 during the first Trump Administration.

A.H. McElroy II (CEO of McElroy Manufacturing, Tulsa) said that the price increase is inevitable. He said that, in the past, the prices of domestic suppliers did not match those of imports. He said that "they raise it just below" the import prices.

McElroy's firm makes machines to weld plastic pipes. He said that raw steel was only a small portion of the overall cost of the company, but that many of its suppliers used the metal and aluminum to make the components they provided him.

The company surveyed its top 15 raw material suppliers to get a better idea of their exposure. The responses ranged from "zero effect anticipated" by tariffs to "full assurance that our costs will rise as domestic demand increases, and producers increase their prices." (Reporting from Timothy Aeppel and Eric Onstad, both in New York; editing by Dan Burns and Claudia Parsons.)

(source: Reuters)