An 18 per cent increase in prices resulted in record revenues for US frim Reliance Steel & Aluminum (RS). At the same time, the second best quarter in its history was recorded by another US firm Nucor (NUE).
“All in all, we’re very happy with tariffs,” Nucor CEO John Ferriola told analysts earlier this month.
These are words that have hardly been spoken by many of the other corporate bosses who are struggling with sticker shock.
The profits of Harley-Davidson (HOG), General Motors (GM), General Electric (GE), 3M (MMM) and hundreds of other companies is being into by tariffs imposed by the United States and the major trading partners. The top bosses of these companies are rushing to increase prices and reorganize their supply chains.
On the other hand, there is rejoice among steel companies who are enjoying the benefits that the 25 per cent tariff on imported steel imposed by the United States President Donald Trump had imposed. According to S&P Global Platts, since the beginning of the year, there has been a 41 per cent increase in the benchmark price of US-made steel which now stands at $917 per short ton.
But tariffs are not only drivers. The US economy – which just touched its fastest pace in four years, is also seeing a strong demand for steel.
US Steel (X) and AK Steel are scheduled to report results this week, following the booming profits from Nucor and Reliance.
It is expected that both the steel firms would report increase in revenues even though not as high as their peers.
Taking advantage of the growth trend, about $1 billion is being reinvested by Nucor in its business mostly for expansion purposes.
“What will happen to our great country if we continue to operate with a massive trade imbalance?” Ferriola asked. “We agree with the administration’s efforts to address this issue.”
There is however less enthusiasm among steel customers for known obvious reasons.
At FJM Ferro, a Brooklyn company that fabricates steel used in Manhattan skyscrapers,. There has been an increase of 50 per cent in material costs.
Joe Casucci, FJM Ferro’s founder and CEO said: “Steel companies may have record profits, but it does hurt the mom-and-pop shops.”
Even large companies are getting squeezed. Profit outlook was slashed last week by GM and the company warned that there would be an increase of $300 million in commodity costs because of increased steel and aluminum prices.
“You have to be careful with tariffs because there’s always a cost,” said Philip Gibbs, a steel analyst at KeyBanc Capital Markets.
There is a threat that American businesses would become less competitive because of the hike in US steel prices, he pointed out. Some companies could ultimately try to seek other modes of getting steel in the US.
“It feels good in the short run as prices go up,” Gibbs said. “But then all the customers complain.”
(Adapted form Money.CNN.com)