Bracing for the impact of US tariffs on aluminum, steel

July 19, 2018 By    
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Tariffs of 25 percent on steel and 10 percent on aluminum implemented against the leading industrial nations of Britain, Canada, Japan, France, Germany and Italy, along with the 25 other countries comprising the European Union, have resulted in tit-for-tat talk of retaliatory tariffs from the aggrieved nations. Photo: iStock.com/gguy44

Reflecting on propane’s position as a global commodity, industry executives are ruminating over the possible repercussions of President Donald Trump’s trade war salvos being directed at the nation’s friends and foes alike.

Tariffs of 25 percent on steel and 10 percent on aluminum implemented against the leading industrial nations of Britain, Canada, Japan, France, Germany and Italy, along with the 25 other countries comprising the European Union, have resulted in tit-for-tat talk of retaliatory tariffs from the aggrieved nations.

In addition, China recently announced a 25 percent tariff on propane arriving from the United States.

“The China tariffs on propane imported from the U.S. should lead to a modest decrease in U.S. propane prices that will offset at least part of the increase in steel and aluminum prices,” says Michael Sloan, managing director of ICF’s Natural Gas & Liquids Advisory Services.

“The China tariffs will put U.S. propane exporters at a significant disadvantage in this market; this will tend to shift international trade patterns,” he adds. “China buyers will shift to other international sources of propane in order to avoid paying the tariff.”

Sloan says producers moving into the Chinese market will be able to charge a somewhat higher price, but they will reduce sales of propane in other markets, creating new opportunities for U.S. propane exports.

“However, U.S. propane exporters will need to reduce prices in order to serve these markets, leading to a general decrease in North American propane prices,” Sloan says. “The question is how much?”

Assessing collateral damage

“We must put American workers first,” says Trump in justifying the tariffs, emphasizing a long-held belief that other nations are taking unfair advantage of the U.S.

Yet the ongoing state of intertwining worldwide supply chain relationships that he appears to disregard are poised to present challenges to domestic employment and financial tranquility. In addition to direct impacts, the looming trade war could inflict collateral damage that might not be readily apparent on the home front.

“In the short term, the tariffs on steel and aluminum are likely to lead to a significant increase in the costs of the raw materials used in tanks, pipes, vehicles and other equipment used by the propane industry,” Sloan says.

According to Sloan, the propane industry should expect the increased cost in raw materials to be passed on to buyers. In the short term, this will lead to higher prices for the high-cost capital items used by the industry. However, the cost disadvantage should decrease with time as the U.S. increases supply.
Mike VanDenBoom, president of Michigan-based Signature Truck Systems, a manufacturer of bobtails, service trucks and transports, feels the long-term effects of the tariffs are unclear.

“As of right now, we are seeing varying increases for aluminum and steel in the amounts of 3 percent to 10 percent,” he says.

Although most of the company’s metals are sourced domestically, vendor pricing is on the rise “because they have the opportunity” due to the higher cost of imported materials. Some of the tanks come from Canada; others are purchased from the U.S. The core drivetrain/chassis units supplied by vehicle OEMs could also become more expensive. This scenario has yet to occur, “but that could change,” says VanDenBoom.

The possibility arises that Signature might have to raise its bobtail and service truck prices by $1,000 to $2,000 per vehicle, with a higher increase for transports.

“It’s probably more of a cost and headache of doing business, and we’re keeping an eye on it,” he adds.

On the front burner

Istock.com/catscandotcom

Image: iStock.com/catscandotcom

With marketers steeling themselves over the prospect of costlier storage vessels, “they’re planning their steel like they’re pre-planning and pre-buying their propane,” reports Joey Crist at Crist Propane Services, a tank refurbishing firm in Irvington, Kentucky.

“We have customers pre-buying and pre-paying just to get in line,” he says. “The propane retailers are taking notice, and they’re planning their tank purchases a lot more aggressively than in previous years.”

Crist’s company specializes in rehabilitating existing tanks for reuse, and business is up. He says anytime new-tank manufacturers have to raise their prices it’s beneficial to refurbishers.

“Propane is a procrastinating industry,” Crist comments. “They typically put their steel on the back burner and only call when they need it yesterday. Steel is no longer on the back burner.”

Headwinds cramping campers

Entering into the heat of the summer vacation season, the recreational vehicle industry is reeling over across-the-board vendor pricing increases. Self-propelled units and towable trailers are constructed using vast amounts of aluminum and steel while annually utilizing more than a million imported propane tanks to fuel the self-contained utility needs.

According to Mike Ochs, director of federal government affairs at the RV Industry Association, the membership “has historically been reluctant to source [propane tanks] domestically due to capacity and quality concerns. When the industry has sourced propane cylinders domestically, such as during the West Coast ports dockworkers strike a couple of years ago, the delivery times were not only double, but many cylinders had to be returned for quality concerns such as bending and denting.”

RV manufacturers estimate that under the current conditions, domestic production of steel propane cylinders would only be able to supply 25 percent to 40 percent of the tanks needed by the RV industry, says Ochs.

Headquartered in Elkhart, Indiana, Thor Industries encompasses 18 subsidiaries that manufacture RVs, towable camping trailers and “toy haulers” for cars and ATVs, including brands such as Airstream, Dutchman, Entregra Coach and Thor Motor Coach.

“We continue to leverage the strength in industry demand to drive the year-over-year growth in both our top and bottom lines,” says Bob Martin, president and CEO of Thor Industries. “While labor costs have moderated, we are experiencing inflationary price increases in certain raw material and commodity-based components due in large part to the headwinds created by the announcement and implementation of the steel and aluminum tariffs and other regulatory actions, as well as higher warranty costs.”

Martin also expresses concern over the pending outcome of a U.S. government investigation over alleged “dumping” into the American marketplace of artificially bargain-priced propane tanks originating from overseas manufacturers.

Petitioning for fair trade

In May, Manchester Tank and Worthington Industries jointly filed antidumping and countervailing duty petitions with the U.S. International Trade Commission (ITC) and the U.S. Department of Commerce, charging that imports of steel propane cylinders from China, Taiwan and Thailand are being sold at a price less than fair value, and that imports from China are also being subsidized by the Chinese government.

“Foreign producers in China, Taiwan and Thailand have been aggressively selling steel portable propane cylinders in the U.S. at prices that are dramatically lower than the domestic industry for several years, putting considerable downward pricing pressure on and taking sales from competing U.S. producers,” says Mark Komlosi, Worthington’s director of national sales and LP products.

The petitions cover 2015 through 2017, but Worthington first saw imports from China, Taiwan and Thailand to its RV customers eight to 10 years ago, Komlosi says. After the recession, RV producers began purchasing low-priced imported steel propane cylinders, he adds. The foreign producers now have networks in the U.S. that allow them to sell to retail, distributor and gas exchanger customers.

“The growing volumes of unfairly-priced imports have led to significant financial harm to the domestic industry,” Komlosi says. “A remedy is needed to restore fair trading conditions and ensure imports are fairly priced. It’s not a level playing field.”


Alleged Dumping Margins
(On steel propane cylinders)

  • China From 55.41 to 108.60 percent
  • Taiwan From 27.19 to 66.20 percent
  • Thailand 47.67 and 122.48 percent
    Source: U.S. Department of Commerce

2017 Steel Propane Cylinder Import Statistics
Quantity (Units)/Value

  • China 4,006,413/$89.8 million
  • Taiwan 706,351/$10.1 million
  • Thailand 877,767/$14.1 million
    Source: U.S. Census Bureau

1 Comment on "Bracing for the impact of US tariffs on aluminum, steel"

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  1. Steel prices are still lower than 2012 prices. I would like to know how a thirty dollar increase in steel cost per tank translates to a $250.00 price increase. The price increase alone will pay for 2 tanks steel.