Defensive Coil

From the Hazardous Cargo Bulletin, April 2002

President Bush's tariffs on steel imports create challenges for steel drum manufacturers and reconditioners

US President George W Bush caused global uproar by announcing his decision to impose tariffs on steel imports last month. The tariffs are set to stay in place for the next three years. In an attempt to rescue the floundering US steel industry, Bush has unwittingly damaged those in his country that have to buy steel. For every job in the steel industry, there are 75 jobs in the industries that buy steel, according to a report in the Chicago Tribune.

"Steel prices will increase by an unprecedented amount due to his decision," says Steel Shipping Container Institute (SSCI) chairman Kyle Stavig. "Our membership is doing its best to manage this challenge in the marketplace. Individually our members are working to secure steel for their requirements at competitive prices."

"For Skolnik and the steel drum industry as a unit, we are but a small user in the greater scheme of industry," says Howard Skolnik, chief executive officer of Skolnik Industries. " While much of our steel is domestic, we also purchase some foreign steel via US steel service centres. Since we have purchase contracts through the middle of the year, we may not see any effects until the second half of 2002."

"Either way, it is typical for us to pass the direct steel cost down the supply chain," Skolnik continues. "Hopefully our margins will allow us to absorb some of the increases, but steel price adjustments are not new to the customers of steel products."

The demand for steel in the US is set to overtake supply following the President's decision, according to SSCI statistics. US steel producer LTV is no longer making steel, which subtracts an annual volume of 7.6m tonnes from available steel supplies. Without foreign steel imports, accounting for 38m tonnes, the shortfall of supply stands at 29.5m tonnes.

"Availability of steel is more of a concern as the US mills tend to favour their larger customers. As a matter of practice, Skolnik only buys via steel service centres that carry clout with the mills, as Skolnik alone would not be a significant mill customer," Skolnik concludes, offering strategic advice for companies affected.

The Bush decision could also have knock-on effects for steel drum reconditioners. "It is a bit of a double-edged sword," comments Reusable Industrial Packaging Association (RIPA) president Paul Rankin. "Speaking macro-economically, anything that modestly drives up the price of new steel drums tends to have a positive impact on the ability of reconditioners to sell into certain markets."

"Conversely, if the higher cost of new steel drums cuts significantly into the market share of that industry, we lose raw material supply which drives up the cost of used steel drums because supply is reduced." Rankin concludes, "In the best of worlds, we would like a stable, healthy and expanding new steel drum industry."

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