President Donald Trump's threat to impose expansive tariffs on steel and aluminum is already boosting customer inquiries at U.S. mills, along with U.S. metal prices. But how much the direct U.S. aluminum and steel sectors may benefit from a tariff remains an open — and fraught — question, according to metals experts.
"Steel mills are reporting they're getting a lot of communication from buyers that come around occasionally or never at all," said Doug Hilderhoff, CRU Group's principal analyst on steel.
The implication is that customers that rely on imports are already seeking alternative metal sources from U.S. suppliers. But getting it may not be easy. Hilderhoff said steel mills will likely help existing customers first, rather than those that rely on imports and all of a sudden want U.S. supply.
Meanwhile, in both the steel and aluminum sectors, the prospect of the tariff is raising prices. Josh Spoores, CRU Group's principal analyst for aluminum, has assessed recent aluminum price movements in the U.S. and estimates the Midwest Premium has more than doubled from a base line of 8.3 U.S. cents.
"What we see is the Midwest Premium likely shifting to a duty-paid premium here in the U.S. and settling somewhere at 18 U.S. cents to 20 U.S. cents a pound on a duty-paid basis," Spoores said.
As for steel, Hilderhoff says the market has already started to drive steel prices higher, having now realized the potential magnitude of the proposed tariff. He sees U.S. steel prices jumping in proportion to the proposed 25% tariff, should it come without country exceptions.
Nailing down implications
Analysts stress that the issue of impact — how much direct U.S. producers of steel and aluminum may benefit — is unclear.
CPM Group analyst Jeffrey Christian sees the possible tariffs as destructive to the broader economy, but he and others acknowledge it could boost the U.S. steel and aluminum sectors. "Ultimately you might see some increases in capacity," he said.
Another experienced metals expert who is part of a company with a commodities trading desk, noted that the team there is furiously trying to figure out just how tariffs may impact U.S. industry with an eye to possible trades. "But really they have no idea," he said.
Still, CRU Group analysts have started to model the possibilities, making some tentative guesses and general observations. In steel, Hilderhoff notes the shift away from imports would not be quick and will also be difficult for some customers to make, especially in the auto sector. Overall he sees the U.S. remaining a net importer.
"There's no way we can produce enough to satisfy the market," Hilderhoff commented.
There is underutilized capacity at existing steel mills that will start to fill up, he said, and also the potential for restarts of idled mills. Spoores noted the same for the aluminum sector, but said the restarts will be slow, taking at least six to nine months.
As for industries that supply steelmakers, companies with plans to expand in Ohio may get a boost. Hilderhoff pointed to a pig iron facility set to restart by Republic Steel Inc. and Cleveland-Cliffs Inc.'s plans for a hot-briquetted iron facility.
Whether there will be new capacity built in reaction to a tariff is a harder question to answer. Hilderhoff noted that for a company to allocate capital, there would need to be a certainty that the tariff would stay in place for years.
As for imports, experts expect U.S. reliance on foreign steel and aluminum to decline as U.S. production picks up. Spoores expects all countries "to feel the pain" with a broad-based tariff, should Trump impose one.
But for customers, the shift away from imports may not be a simple matter. Hilderhoff emphasized that some companies that depend on steel, for example, cannot quickly change their sourcing, notably in the automotive sector. "They're locked into platforms," he said. "If you have a Canadian mill that's making a good product and you're importing it, that's unfortunate."
Hilderhoff also said it is difficult to assess the impact of how reductions in imports will fall country by country. Some Asian steel products may be cheap, for example, and give them an advantage on price. But a country like Canada, the top source of both U.S. steel and aluminum, has the advantage of being closer and in some cases producing higher quality products that customers may need.
"I've had an automotive maker tell me once the most expensive steel is the steel that doesn't show up," Hilderhoff said. "That's their concern."
Chris Rogers contributed to this article.
Panjiva and S&P Global Market Intelligence are owned by S&P Global Inc.