How Section 232 Tariffs Have Pushed Distributors and Service Centers Towards Value-Added Services
The Section 232 tariffs (i.e. tariffs on imported steel and aluminum) have reconfigured the entire metals industry. In 2018, the Trump Administration unveiled protectionist measures to insulate domestic mills and metals suppliers from foreign competition in the supply of steel and aluminum. Politically, the tariffs served Trump’s fulfillment of his campaign promise to promote American interests against the backdrop of increased globalization in an effort “To Make America Great Again.” The Trump Administration leveraged the tariffs to pressure China and Mexico—amongst other countries—into acquiescing to the administration’s desires to rework various trade deals. While the ultimate success of Trump’s unique and disruptive negotiation style can only be judged in the years after his presidency, the tariffs have had direct and unintended consequences for participants in the metals industry. We have previously written about the rosy outlook for mills and suppliers in 2019 and beyond, but the outlook remains uncertain for end-users and manufacturers.
When the Trump Administration announced Section 232 in March 2018, mills, service centers and secondary distributors raised prices across the board on carbon steel, stainless steel, and aluminum. This industry-wide response was a mixture of anxiety about price volatility and shrewd attempts to increase a profit margin that had been compressed by heavy consolidation in the industry. Even participants further downstream, such as metals polishing companies, saw a boon in revenue and profit as end-users and manufacturers rushed their projects to market in response to the upstream price increase. 2018 was an unparalleled year for mills, distributors, and metals polishing companies as companies enjoyed the immediate effects of Section 232 and the Trump Administration’s tax cuts. However, once the dust settled in Q1-2019, the unintended consequences of Section 232 began to flower throughout the metals supply chain.
Consistent demand for steel and aluminum has bolstered domestic mills and distributors. The universal applications of steel and aluminum limits the availability of cheap substitutes. However, manufacturers and end-users, facing logistical hurdles and high costs in sourcing steel and aluminum have reacted by lowering other operational costs. Large OEMs reliant on steel and aluminum such as Caterpillar and Coors are off-setting costs by laying off substantial parts of their labor force unnecessary to the direct production of their product. As such, manufacturers and end-users will need to rely on outside processing for value-added services. Distributors and other participants will benefit from manufacturers or end-users who now have to outsource value-added services such as metals polishing, bending, shearing, leveling, and cutting due to their labor reduction.
The metals industry, prior to Section 232, was trending towards value-added services as service centers and distributors needed to enhance margin. The end-user or manufacturer will need to streamline processes to account for continued shifting costs. Outsourcing value-added services such as metals polishing will be a cheaper alternative than in-house processing. This will further spur distributors and service centers towards value-added services.
Diamond Brite Metals is the country’s most comprehensive metals polishing facility. We welcome any inquiry regardless of size or complexity. To submit an RFQ, please reach out to our Sales Desk at Sales@diamondbritemetals.com.