When President Trump slapped 25% tariffs on foreign steel in March 2018, panicky U.S. buyers rushed to place new orders before feared supply interruptions, driving prices up sharply. It was an instant bonanza for domestic steel producers. With much fanfare, some announced ambitious expansion plans. U.S. Steel Corp. even fired up a pair of long-idled blast furnaces in Granite City, Ill.

What a difference a year has made. Benchmark steel prices have fallen well below their level before the tariffs took effect and are now about half their peak in July 2018. The industry has responded with production cutbacks, including U.S. Steel in its taconite operations on the Iron Range.

And while that Granite City smelter is still operating, Pittsburgh-based U.S. Steel also has begun laying off scores of workers at two other old blast furnaces. Several other steelmakers also are cutting back. Overall employment at steel mills is little changed from two years ago.

The root of the steel problem is a perfect storm that leaders of the American industry, prodded by Trump’s policies, created for themselves and their companies. Emboldened by tariffs, the president’s pro-business rhetoric and tax cuts, steel companies went on a spending spree that added production capacity to a domestic market that didn’t need it.

At the same time, there has been a general slowdown of the global economy. U.S. manufacturing is currently in or near a recession.

Falling demand and higher capacity are a “toxic combination,” said Timna Tanners, a steel industry analyst at BofA Merrill Lynch Global Research. By analysts’ estimates, the announced moves will increase domestic steel production capacity by about 20% in the next few years.

Trump administration officials and the American Iron and Steel Institute argue that the tariffs have worked by curbing imports and boosting the share of U.S. production.

It’s true that steel imports have fallen as a share of the total domestic steel market, from about 30% of all U.S. purchases down to 20%. But even if imports fell to zero, there would still be more U.S. production capacity than needed if projects are completed.

Moreover, when the bulk of new capacity starts up later next year, Tanners said, demand for steel could slow further. Carmakers are increasingly using more aluminum, and nonresidential construction has already peaked.

That means steel prices could tumble further.

 

Lee writes for the Los Angeles Times.