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The Impact of Tariffs on Foreign Steel Producers and Their U.S. Customers

Market and Economics

By Aly Mazzie  |  June 11, 2018

Editor's Note: This article  was updated on June 11 to address new policy details. 

At the end of May, the Trump administration announced the imposition of new steel and aluminum tariffs on Canada and Mexico, two countries that were excluded from the previous policy. To capture the impact of this shift, here’s a look at which Canadian and Mexican companies would be affected by the newly imposed tariffs. Below are the top five steel and aluminum manufacturers from Canada and Mexico based on percentage of revenue derived from U.S. companies.

Company Name

Country of Domicile

US Revenue %

Omni-Lite Industries Canada Inc

Canada

89.83

TREE ISLAND STEEL LTD

Canada

63.20

Industrias CH SA de CV

Mexico

33.92

Russel Metals Inc

Canada

30.02

Grupo Simec SAB de CV

Mexico

29.04

A further look at the U.S.-based customers of the companies listed above did not uncover overlap with the customers of our initial analysis (non-NAFTA based producers of steel and aluminum). Compared with our original list, these new tariffs seem more likely to impact the American consumer. With Ford, GM, Caterpillar Inc., Deere & Co. Home Depot, and Lowe’s making the list of impacted customers, it’s hard to think of a consumer who will not see higher prices when shopping for a new car, or buying supplies for home repair.

One example of this is American Axle, a Detroit-based company with 25,000 employees that supplies the automotive industry. American Axle is a customer of both Grupo Simec SAB de CV and Industrias CH SA de CV, and its customers include GM, Ford, Fiat Chrysler, BMW, Volkswagen, Honda, and Nissan. However, since President Trump’s announcement on May 31, the price of American Axle has risen by nearly 9%. 

Supplier Name

Customer Name

RBICS Economy

Grupo Simec SAB de CV

American Axle & Manufacturing Holdings Inc

Consumer Cyclicals

Grupo Simec SAB de CV

CASTLE AM & CO

Non-Energy Materials

Grupo Simec SAB de CV

Ford Motor Co

Consumer Cyclicals

Grupo Simec SAB de CV

General Motors Co

Consumer Cyclicals

Grupo Simec SAB de CV

MAT HOLDINGS INC

*Private Company

Grupo Simec SAB de CV

Meritor Inc

Industrials

Grupo Simec SAB de CV

Reliance Steel and Aluminum Co

Non-Energy Materials

Industrias CH SA de CV

American Axle & Manufacturing Holdings Inc

Consumer Cyclicals

Industrias CH SA de CV

Amsted Industries Incorporated

*Private Company

Industrias CH SA de CV

Caterpillar Inc

Industrials

Industrias CH SA de CV

Deere & Co

Industrials

Industrias CH SA de CV

Home Depot Inc

Consumer Cyclicals

Industrias CH SA de CV

Lowe's Companies Inc

Consumer Cyclicals

Industrias CH SA de CV

Meritor Inc

Industrials

Industrias CH SA de CV

Tenneco Inc

Industrials

Industrias CH SA de CV

The Boler Company

*Private Company

Industrias CH SA de CV

Weyerhaeuser Co

Finance

 

The Impact of the Original Policy (Original Story)

At the end of February, President Trump announced his intention to impose a 25% tariff on steel and a 10% tariff on aluminum imports. Shortly after his announcement, the Dow, S&P 500 and, Nasdaq fell more than 1%, as leaders in his both parties urged the President to consider other options. At the same time, U.S. trade partners threatened to impose retaliatory import tariffs on U.S. goods ranging from bourbon to blue jeans. Proclamations ordering the tariffs were signed in early March, and at the time there were exclusions for NAFTA partners Canada and Mexico.

In order to understand the potential market and economic impact, we looked at non-U.S. steel manufacturers, their U.S. customers and the potential economic impact of a steel tariff.

Which Non-U.S. Companies Would be Impacted by Steel Tariffs?

We first used the FactSet Revere Business Industry Classification System (RBICS) to identify non-U.S. companies whose primary line of business is steel manufacturing. Next, we used FactSet Revere GeoRev to find which of the companies generate more than 20% of their revenue from the United States.

Because Mexico and Canada were excluded from the tariff when this article was originally published, we removed Industrias CH SA de CV (ICHB-MS), Gruopo Simec SAB de CV (SIMECB-MX), and Russel Metals Inc (RUS-CA) from our analysis.

The companies in the list below stand to lose significant U.S. business due to these stiff tariffs, and their customers in the U.S. are likely to suffer, as well.

Company Name*

Country of Domicile

Geographic Revenue from U.S. (%)

Ta Chen Stainless Pipe Co Ltd

Taiwan

87.44

Xxentria Technology Materials Corp

Taiwan

87.24

TAIWAN FU HSING INDUSTRIAL CO LTD

Taiwan

64.63

Tyman PLC

United Kingdom

57.00

PT Alumindo Light Metal Industry Tbk

Indonesia

48.09

CASETEK HOLDINGS LTD

Taiwan

46.46

Acerinox SA

Spain

37.83

Welspun Corp Ltd

India

36.66

Osaka Titanium Technologies Co., Ltd.

Japan

35.46

Assa Abloy AB

Sweden

35.45

DONGKUK STRUCTURES & CONSTRUCTION CO LTD

South Korea

32.40

Gloria Material Technology Corp

Taiwan

27.20

Seah Steel Corporation

South Korea

24.67

San Shing Fastech Corp

Taiwan

24.61

SSAB AB

Sweden

23.61

SKF AB

Sweden

21.00

ArcelorMittal SA

Netherlands

20.92

Timken India Ltd

India

20.28

*Non-U.S. steel manufacturers deriving more than 20% of their revenue in the United States

How Will a Steel Tariff Affect U.S. Companies?

The recently levied tariffs are designed to incentivize U.S. companies to source their steel domestically, but the result is likely to be that companies will face higher steel prices whether they buy U.S. or foreign steel. Obviously, the price of foreign steel will go up by 25% because of the tariffs. For U.S.-produced steel, prices are likely to rise due to production capacity restraints, especially in the near term. In addition, the restrictions on foreign steel will give U.S. steel producers more pricing power in the domestic market.

Here are the top U.S.-domiciled importers of steel from the list of non-U.S. steel manufacturers above.

Customers of Imported Steel*

RBICS Focus (Economy)

State of Minnesota

Non-Corporate

Datawatch Systems Inc.

Business Services

MSC Industrial Direct Co Inc

Industrials

Government of the United States

Non-Corporate

Frazier Industrial Co. Inc

Consumer Cyclicals

W.T. Walker Group Inc.

Industrials

Central Yoshida Co. Ltd.

Non-Energy Materials

Hannibal Industries Inc.

Non-Energy Materials

The Corey Steel Co.

Non-Energy Materials

Patton Sales Corp.

Industrials

HHI Group Holdings LLC

Consumer Cyclicals

Summit Steel Inc

Industrials

Lapham Hickey Steel Corp.

Non-Energy Materials

MLP Steel LLC

Industrials

Enforge LLC

Consumer Cyclicals

Hephaestus Holdings LLC

Industrials

TIMKEN CO

Non-Energy Materials

MSC Industrial Direct Co Inc

Industrials

*These are direct customers of non-U.S. steel manufacturers deriving more than 20% of their revenue in the United States

The newly imposed tariffs are a boost for the U.S. steel industry, but these U.S. steel consumers will face higher input costs and will be forced to pass on those costs to their customers. There are other challenges for U.S. steel consumers (and their downstream customers) who sell their products to the U.S. government.

Challenges for U.S. Government Contractors

Drilling down further into the supply chain, we can identify the customers of the U.S.-based importers of foreign steel. One interesting example is Timken India. Timken India supplies bearings and components to its U.S. parent company, Timken Company. Timken Company supplies mechanical power transmission components to Kaman (KAMN-US) whose largest customers are Boeing, Lockheed Martin, Raytheon and the U.S. Government.

Boeing purchases bearings from Timken used in the A10, Boeing 767, and 777 and Lockheed Martin buys bearings used in the H60 Sikorsky Black Hawk. Additionally Timken is a supplier for Raytheon and the U.S. government, which purchases programmable fuses for the HS2G aircraft from them.

Supply Chain Direction 
In addition to facing higher prices because of the tariffs, companies like Timken will face challenges because of their government contracts. In April 2017, President Trump issued the “Buy American and Hire American” executive order, “in order to promote economic and national security and to help stimulate economic growth.” Previous “Buy American” rules only required 50% American-sourced components for most federal procurement contracts or the 100% requirement could be waived in certain cases; with this executive order, the requirement is now 100% across the board. The executive order specifically references iron and steel products, which would affect federal contractors and the steel they use.

As shown above, Boeing, Lockheed Martin, Raytheon, and the U.S. government are, in many cases, sourcing their materials from U.S.-based companies. However, their upstream suppliers may be sourcing materials from foreign companies. Because of these long and complex supply chains, enforcement of the tougher rules will be a challenge; the executive order promises more rigorous compliance measures, but no specifics were provided on how this would be accomplished.

What Will Be the Overall Economic Impact of the Tariffs?

Looking at the downstream customers of the 18 U.S. steel-importing companies listed above, the industries most impacted by the tariffs will be Mining and Mineral Products and Industrial Manufacturing. Within Mining and Mineral Products, higher production supply costs will hurt companies in the oil extraction sector at a time when they are already being hit by lower global oil prices.

Industrial Manufacturing covers a wide range of U.S. industries. In fact, several U.S. trade groups have warned that the new tariffs will drive up input costs for U.S. manufacturers that will necessarily be passed on to the consumer, and could potentially cost U.S. jobs. Groups raising concerns include the Alliance of Automobile Manufacturers, the National Retail Federation, and the National Association of Home Builders. Just this week, JPMorgan Chase CEO Jamie Dimon made news when he expressed concerns about the tariff plans; Dimon is the chair of the Business Roundtable, an organization composed of CEO’s of leading U.S. companies that strong supports free trade. 

By identifying the non-U.S. companies exporting steel to the U.S. and the supply chains of the U.S. companies importing their products, we can paint a detailed picture of the impact of steel tariffs on U.S. companies and the U.S. economy. While the U.S. steel industry will benefit from the newly imposed tariffs, many other U.S. industries could suffer as they face higher input costs. These companies will be forced to reduce their profit margins or pass increased costs on to consumers, potentially leading to lower stock market valuations, higher inflation, and lower consumer spending
 
Zach Botzenhart, Product Manager, Index Solutions; Samantha Cheong Senior Product Manager, Index Solutions; and Sara Potter, Vice President, Associate Director, Thought Leadership and Insights also contributed to this article. 
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