Canton Repository

April 21, 2002

Tariffs, rising prices cut U.S. steel industry’s losses, aid earnings 

Copley News Service

WASHINGTON — The controversial tariffs on foreign steel ordered by President Bush are only a month old, but they’re already benefiting American steel makers while hurting steel buyers.

Bethlehem Steel, the nation’s third-largest steel company, was
fighting for its very survival as the year began. The once-dominant giant has been in bankruptcy proceedings since October. But in the first three months of this year, Bethlehem cut its losses in half to $97 million.

“We were in a free-fall in the fourth quarter of 2001, but markets have recovered very well since year end,” said Robert “Steve” Miller Jr., the company’s chairman and chief executive officer. “Over the next year or so, I would say there is zero chance Bethlehem would be shutting down our plants or going out of business.”

By raising the cost of foreign steel, the tariffs have made it easier for U.S. companies to hike their prices and increase revenues. The increased duties are to remain in effect for three years.

While the producers of steel are buoyed by the higher prices, the tariffs are a potential nightmare for American manufacturers that use the metal to make their products. Some are reporting price increases of 20 percent and more.

The fledgling economic recovery is another cause of rising steel
prices, economists and analysts say. Demand for steel is growing after the shutdown of Cleveland-based LTV Steel and other producers last year reduced the amount of steel available.

U.S. Steel Corp., the nation’s largest steel maker, and other producers are running their plants at higher capacity, allowing them to operate with more efficiency, they say.

“Business is holding and improving in many areas,” said John Willoughby, vice president of human resources for Republic
Technologies International, a maker of specialty bar steel in Fairlawn. Like Bethlehem, Republic is struggling to reorganize while in bankruptcy proceedings.

The Timken Co., a manufacturer of tapered roller bearings and specialty steel in Canton, has increased its earnings to $9.2 million in the first three months of the year. The company’s steel business “achieved a strong performance” as a result of healthy auto sales and cost controls, W.R. Timken Jr., chairman and chief executive officer of Timken, said in a prepared statement.

After months of intense lobbying from steel executives and union workers who complained of cheap, unfairly traded foreign steel, Bush ordered tariff hikes of up to 30 percent on a wide range of steel imports.

Steel prices in 2001 had fallen to their lowest levels in more than 20 years.

Republic tried to raise prices last July. The company never implemented the price hike because buyers wouldn’t accept it, Willoughby said.

In the last three months, however, U.S. steel companies have raised prices 20 percent or more, with further hikes likely.

Nucor Corp., the nation’s second-largest steel maker, has announced increases that will raise the price of cold rolled sheet steel, used for tubing and appliances, to at least $410 a ton by Aug. 1.

As of March, the average price for cold rolled was $370 a ton, up from a low of $300 a ton in December, according to Purchasing
Magazine, which tracks steel prices.

U.S. Steel and Timken are raising prices May 1. Timken will charge $5 to $40 more per ton on its specialty steel bar. U.S. Steel is asking $50 to $70 more per ton for sheet steel.

Republic already raised prices by $20 to $35 per ton Feb. 4.

In many cases, the announced price hikes have affected only steel sold on the spot market. Steel companies are seeking further increases as they renegotiate contracts for a year or more with automakers and other large steel buyers.

In any case, the tariff hikes are pinching many of their customers who have to foot the bill. Economists say that some portion of the increased costs will eventually be passed on to the final consumers — car buyers and others who purchase steel products.

Smaller firms and subcontractors that lack the clout of larger companies to negotiate prices are most vulnerable.

Steel prices are rising by 20 percent to 30 percent for Republic Storage Systems, a Canton-based manufacturer of lockers and
storage products.

“It’s devastating,” said Chief Executive Officer Jim Anderson. “We’re going to have to cut costs everywhere and increase our prices. Unfortunately, we’re going to have a tough time increasing prices.”

E.J. Ajax & Sons, a metal stamping firm in Fridley, Minn., is accepting a 20-percent price hike even though the company had a contract to buy steel at lower prices.

“The tariffs have turned steel into a potentially very scarce commodity, and our feeling is that we could take them (suppliers) to court and we could hire a lawyer and we might even be able to win,” said Tom Ajax, chief executive officer of the company. “But we feel it would seriously ... jeopardize our supply of raw material in the next few months.”

While demand for steel grows, reduced supply has led to higher prices for sellers.

“In the last two years, there has been about 15 to 16 million tons of flat rolled capacity that has been shuttered, and a lot of that happened last year,” said Dan DiMicco, Nucor’s chief executive officer.

Timken executives credit the economic recovery and tariffs for the climb in prices.

“It seems like it’s both,” Timken spokesman Jason Saragian said. “The balance of the year we presume to be reasonably good.”

Steel sales are growing as manufacturers run short on inventory and have to restock.

“Instead of people deferring orders, thinking they would get a lower price next month, they’re now accelerating orders to try to
avoid paying a higher price in the future,” said Miller of Bethlehem. “That all creates a very strong marketplace.”