The U.S. trade war has hit home for Kolberg-Pioneer president Jeff May, with some steel prices rising 50 percent for his Yankton manufacturing plant.
The impact started with the Trump administration’s announcement earlier this year of the tariffs on Chinese steel, May said. Kolberg-Pioneer manufactures equipment for making crushed stone, sand and gravel.
"The tariffs have just gone into effect, but it’s something we’ve been dealing with just knowing (about it) for some time," he said. "Since the Trump administration proposed (the tariffs), there has been a lot of discussion. You have seen prices inching up in the marketplace."
However, tariffs aren’t the only reason, May told the Press & Dakotan.
"Today, we have prices about 50 percent higher on your plate steel than maybe last year around this time. You figure, if the tariffs account for a 25 percent increase, then prices should just go up 25 percent," he said.
"In reality, this pretty much shut off a lot of the foreign steel coming into the U.S. Our steel industry can’t supply for all our (domestic) needs, giving them no incentive to lower their prices. We have seen some substantial price increases for the steel we use in our business."
So far, things are going well at the Yankton plant, which employs 485, May said. The full impact of the tariffs will be felt later this year and beyond, he predicted.
"In our particular case, we had contracted for the first half of this year for a lot of our steel, especially our plate steel. Just prior to the tariffs being announced, we had bought our steel for the third quarter. We were in a good position," he said.
"Now, we’re in a situation where we get into the fourth quarter and next year, we’re like pretty much everybody else — we’re buying at the spot prices. We need to really find out if those spot prices will stick or if there will be a softening of steel prices.
"As long as the steel mills are busy and they can fill their production facilities (with work), then softer prices are probably not going to happen."
While the trade war seeks a level playing field for U.S. producers, the tariffs themselves don’t fall the same on everyone, May said.
"Many of our competitors are foreign equipment manufacturers. They don’t’ see the same price increases that we do (because of tariffs), which puts them at an advantage," he said.
"We have a lot of foreign competition in our industry, and these newest tariffs don’t affect them at all. That gives them an ever greater advantage."
The tariff’s timing comes with one silver lining, if there is one, May said.
"Business is good for us right now, and that is the case for most manufacturing," he said. "That’s probably why there hasn’t been more of an outcry. Certain businesses haven’t been severely affected by the steel prices in our industry."
Kolberg-Pioneer announced a price increase to its customers earlier this year, May said. Another round of increases may be necessary
"It helps that things are going well, but it doesn’t mean we are going to maintain the same margin that we’re accustomed to for the product," he said. "We have the 50 percent increase in one of our raw materials, which is a huge factor. The economy has been good, but we may lose customers who are not willing to buy at that cost."
U.S. Sen. Mike Rounds (R-S.D.) spoke with the Press & Dakotan about the impact of the trade war, including steel supplies and manufacturing.
He sees the tax on imported steel as detrimental to many facets of the South Dakota economy. Manufacturing accounts for a large number of jobs in the state, he said.
But the rising steel prices can also impact farmers, particularly their machinery, the senator said.
"They’re not going to buy machinery unless they need it (immediately)," he said. "It puts a damper on our economy."
Kolberg-Pioneer benefits because it purchases most of its steel from North American sources, May said. However, the company does purchase Chinese steel for some needs.
And he goes back to the lower steel prices that foreign competitors already pay even before adding a tariff to U.S. products.
"It’s just a matter of time before some of these tariffs start to affect the overall economy," he said. "Right now, we’re not getting (price quotes) for steel in the fourth quarter. It’s anybody’s guess what will happen with steel prices."
Kolberg-Pioneer, like other manufacturers, needs to move forward with filling orders even with uncertain production costs, May said.
"We have such a large backlog of work, and you have the cost of production. Those costs are going to have to be passed along. All that variability really hurts your business."
May said he supports the goal of fair trade, but it may bring a high cost for American manufacturers, at least in the short term.
"I understand why the president took this action like he did, It was done trying to protect American industries and American jobs," he said. "But it seems like he’s singling out one particular sector, and we’re seeing an adverse effect.
"Maybe it would be better if the government subsidized the steel industry, if it wanted, which would mean increased tax revenues to make it happen."
May looks forward to the future, uncertain about the long-term effect.
"At the end of the day, I don’t know what the end game is out there and what we get out of this," he said. "How do we know when it has been really effective? One of those things we know is that eventually it will catch up to us."
May hopes that negotiations will bring favorable outcomes in the near future.
"Then again, you never know, behind-the-scenes things, that there may be concessions by our trading partners," he said. "There could be actions by the (Trump) administration to roll everything back."
But there’s one thing he doesn’t want to see.
"I just hope we don’t get into a long trade war," he said. "We don’t want a trade war at all."
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