Regardless of your political stance on tariffs and trade wars, the decisions being made in Washington are beginning to make it to the balance sheets of industries. After Steelcase announced its latest quarterly financial report, Chief Executive Officer Jim Keane blamed rising steel prices and transportation costs for sapping some of its profitability.
Here's the bad news: In a story last week in American Metal Market magazine, North American steel industry executives said the market in the United States has only just begun to feel the impact of the Section 232 tariffs on prices for the product.
While the policies in Washington might seem like they are unrelated to office furniture, the effects of higher steel prices are being felt by the industry that still uses a lot of metal while making products.
Keane said the “sudden and significant” increases the company is seeing in the cost of steel and some other commodities, including freight, is not normal. Steelcase doesn't expect to have to pay much for the tariffs yet, since Keane said its American supply chain largely buys from the U.S. suppliers. The company also received good news from the Commerce Department, which granted PolyVision's request for an exclusion from the Japanese steel tariff, Steelcase being one of only 42 exemptions granted in the first wave.
“The larger impact relates to how the tariffs have been a trigger for inflation,” Keane said. “Just to give you a sense of the impact, the cost of coal rolled steel in the U.S. has risen over 20 percent since January 1st and because the price is rising in the U.S. it's causing increases in other parts of the world.” He noted new Canadian retaliatory tariffs will have some effect, but will be relatively small as a direct cost on total company profitability. “We are forecasting this increase in steel prices will add about $5 million to our cost of goods sold in the second quarter,” he said. “That's just steel. Fuel and freight costs are rising for reasons unrelated to tariffs but fuel ... is up over 10 percent since the beginning of the year.”
The U.S. Chamber of Commerce has estimated 2.6 million U.S. jobs are at risk because of the Trump administration's hard-line policies on trade. The estimate includes the impact of ending NAFTA. The tariffs already proposed could cost the U.S. economy about 700,000 jobs by next summer, according to Moody's Analytics.
The Trump administration blamed speculators for the extent of the rise in domestic steel prices since its introduction of tariffs, saying it would investigate what the commerce secretary Wilbur Ross called “profiteering.” Last week, Ross said domestic steel prices, which have become a growing area of concern for many U.S. manufacturers, had increased far more than was justified by the 25 percent tariff President Donald Trump ordered earlier this year. U.S. benchmark steel prices have risen almost 40 percent this year, far more than increases seen in Europe or elsewhere in North America.
Mark Millett , Steel Dynamics, Inc. president and chief executive officer, told American Metal Market that in the past six to eight weeks, the market has only seen the erosion of import supplies stemming from Section 232.
“Commerce Secretary (Wilbur) Ross' comments here recently that prices have gone up because of speculation or speculators is totally inaccurate,” he said. “It is underlying demand that is driving that. And that's before we really have seen the full extent of 232.”
Alan Kestenbaum, executive chairman and CEO of Canadian flat-rolled steel maker Stelco, agreed with Millett's assessment. “People don't realize what's coming in terms of a lack of supply in the market,” he said. “They'll see it soon.”
Keane said rising commodity prices of all kinds are hurting Steelcase.
“If we consider all the commodities we purchased, the impact of inflation has reduced our gross margins in Q1 and appears likely to have a greater effect on Q2,” he said. “Our sourcing and operations are doing what they can to minimize the inflation impact on our costs.” A second price increase by Steelcase this calendar year took effect globally for orders received beginning this week.
“Over time these price increases should help to offset the inflation we've seen so far,” Keane said.
It won't make you feel better if your steel prices are on the rise, but it is safe to say the office furniture industry isn't the only one feeling the effects of rising commodity prices. Lumber is the biggest component of a new home. An average house last year had more than $60,000 in wood products.
Since early last year, lumber costs have shot up by more than 60 percent. That's added almost $9,000 to the price of an average new home, according to the National Association of Home Builders. Much of that lumber price increase is from the Trump administration's recently imposed 20 percent tariff on Canadian lumber and softwood products.
Higher steel prices caused by recent trade tariffs are also hammering builders, said Robert Dietz, chief economist of the builders association. ”Steel prices affect multifamily (and) single-family construction and remodeling, as well as appliances and components," he said. "Tariffs act as a tax on homebuyers and renters by increasing the cost of building and improving housing."