America’s domestic steel industry just got downgraded from “stable” to “negative,” and that’s going to have some serious consequences for American steel companies.
It’s expected that the current issues with the American steel industry will continue for some time, as manufacturing has steadily slowed. Short-term, it’s possible that U.S. steelmakers may need to shutter mills, and jobs may be lost — but this may be necessary for long-term growth.
Here’s the latest on the industry’s uphill battle.
Steel Prices Continue to Struggle
It can be difficult for any to understand why steel prices keep dropping when tariffs keep rising. In 2017, President Donald Trump enacted a number of tariffs related to steel in hopes of reinvigorating the American steel industry. For a time, it worked. Steel mills were reopened, and steel companies were thriving. Then, the market started to go down. Since then, it’s continued to struggle.
Increasingly volatile tariffs have made many wary of purchasing large volumes of steel to begin with. The fear is that they may purchase steel today only for the price to drop significantly tomorrow. With no promises regarding the tariffs, purchasing of steel has gone down. This has further driven the prices down.
America doesn’t presently produce enough steel for its own needs, which means exporting steel is primarily a non-issue. The concerns are about domestic steel not being purchased by domestic clients. Tariffs on out-of-country steel can increase costs overall for companies that rely upon steel for production, which has a ripple effect through many industries.
Companies Struggle With Rising Steel Prices
Companies reliant upon steel are struggling. Keg companies, for instance, which rely upon the steel to manufacture their major product, have had to go through rounds of layoffs. As companies that rely on steel go out of business or begin to struggle, steel purchasing can also go down. There are alternatives to steel, and there’s a possibility that companies will shift away from steel when possible, thereby reducing the cost of steel even more.
Many companies rely upon steel, from automotive companies to energy companies. Energy companies, in particular, rely upon extremely high quality steel that cannot be found on the normal market. If companies are unable to purchase steel at better prices, they will need to increase their own costs. This could have a detrimental impact on the economy.
China Needs to Change the Way It Deals With Steel
But why is the United States steel industry struggling? In large part, it has to do with actions taken by China. China’s government has been purposefully subsidizing its steel industry, much like the corn industry is subsidized in the United States. Consequently, there’s no “free market” effect when it comes to Chinese steel. Chinese steel companies are propped up, and are therefore able to undercut American companies even with tariffs in mind.
As long as China is providing this type of bolstering effect to its steel industry, American steel companies are going to suffer by comparison. By making Chinese steel the most affordable option, Chinese companies have hurt the global steel market as a whole. This is an example of the unfair trade practices that the tariffs were meant to resolve.
China and the United States Need to Make a Deal
China and the US have been negotiating for some time, but eventually, they are going to have to come to an agreement. China will need to address issues such as its steel industry, if it wants this trade war to end. Both the United States and China have been adversely impacted by the current trade war. The hope is that China will soon be open to negotiations regarding ending this trade war, and preserving the strength of the United States markets.
The American steel industry is going to need to go through some major changes if it is to survive, but what those changes are remains to be seen. Unfortunately, steel as a commodity is complex, and it’s difficult to say what (if anything) could be done to stabilize the market. The tariffs, while initially well-intentioned, have proven not to be the answer, as they have actually led to prices dropping and American steel mills being forced to close.
