Global supply chains remain volatile as manufacturers weigh increased tariffs against moving factories from China to ASEAN countries. The overall supply market is struggling strategically as energy, transportation and heavy machinery production all shows negative growth. Despite this, US GPD growth remains @ ~2% while China’s GDP growth has been cut in half over the last decade.
We anticipate similar levels of supply chain disruptions and price volatility through early 2020 at the earliest as President Trump continues to resolve tariff reform with China. US business is being cautious with capital expenditures due to market and consumer uncertainty.
In Q1-Q3:2018, we saw a 55% increase in hot rolled coil (used to make welded pipe). In Q2:2019, all of the 55% increase was dissolved and hot rolled coil dropped to nearly a three-year low. US steelmakers stalled the falling steel price and we are seeing pricing stabilize.
Section 301 of the Trade Act of 1974 targets China’s acts, policies and practices related to technology transfer, intellectual property and innovation. The first action taken on May 29, 2018 under Section 301 was $50B of China exports into the US were imposed with a 25% tariff. The second action taken on June 18, 2018 tariffed another ~$200B at 10% increasing to 25% (remains TBD) if there is no new trade deal struck between the US and China. The US trade deficit with China sits near $347B. President Trump is asking China to reduce this trade deficit by $200B within two years.
Category price and lead time update:
- Domestic A53B GrB, A53F GrA & A135/A795 Pipe – Price to remain stable through Q4. Domestic inventories of tubular products are increasing and demand has lowered. This is due to large inventory buys by distribution along with decreased downstream demand. Inventories are building at mills.
- Import A53B GrB – Importers are hesitant to build off-shore A53B inventories while the import/domestic cost delta remains below 10%. We do not see import 12” and down A53B as a significant cost savings opportunity in 2019.
- Copper Tubing –President Trump and China’s President Xi continue to negotiate a fair-trade agreement. Copper trades at high velocities and daily news of these discussions affect the copper price. We have noticed price swings of >30% with no change in global supply or actual demand for this metal. If trade negotiations show progress, copper could rise another 10% quickly.
- Domestic Weld Fittings & Flanges – After Weldbend’s 7.3% increase on fittings and flanges in Q2:2018, Weldbend imposed an additional 4.5% increase on flanges in June 2018. All other domestic weld fitting manufacturers have retracted additional price increases. We expect pricing to remain flat through 2019. Lead times have greatly improved for commodity material.
- Import Weld Fitting & Flanges – In 08/2017, Tube Forgings of America and Hackney Ladish filed a request for investigation citing that certain Malaysian weld fitting manufacturers were using Chinese weld fittings and stamping them “Malaysian”. In July 2018, the International Trade Administration hit several large Malaysian weld fitting manufacturers with a 182% tariff. This greatly impacted US supply chains. While major manufacturers were exonerated from this action, supply chains are playing catch-up. Pricing and lead time should show signs of relief in early 2020.
- Copper Sweat / Press –Global demand remains soft (mostly due to relaxed China infrastructure growth) and inventories are in surplus. We expect stable pricing and lead times.
- Iron Fittings – Market increased 16% in 2018 due to rising scrap prices. Price should remain flat through Q4 2019. Could possibly see a mild decrease if scrap prices fall late in the year. Lead times are very low.
- Hangers, Strut & Threaded Rod – We saw a 24% increase in 2018 as manufacturers around the world ramped up capacity to keep up with world demand. Lead times remain low however the US Customs and Border Protection agency may stall containers at the port for inspection which could disrupt domestic warehouses from being replenished.
- Bronze & Iron Valves – All of the commercial and industrial valve manufacturers had several increases in 2018. We saw 3-10% in Q3:2018 and another 5-12% in early 2019. We expect one more in 2019 as the tariffs weigh heavy on this sector of the market. Production capacity is stretched as demand continues to be strong.
- Victaulic Grooved Product – Victaulic published their annual increase of 8% in Q1 2019. They carried two increases in 2018 due to increased demand on their US and Chinese foundries. As of now, we do not expect a second increase in 2019.
- Stainless Steel Pipe, Fittings & Flanges –We have seen numerous increases in 2018 resulting from global supply constraints. Domestic stainless producers are charging high premiums as reduced import inventory is available. We expect to see stainless remain flat through Q3 2019. Lead times low on commodity material.
- Forged Steel Fittings & Seamless Nipples – We saw a 25% increase in 2018 on FS fittings due to an ITC trade case imposing tariffs (China Both-Well – 142%, India Both-Well – 116%, Italy MEGA – 80.2%) on rough forgings entering the US. Phoenix (Capitol) and Bonney Forge are 100% US made and manufactured however inventories continue to be disrupted due to less imports. We expect 2019 pricing and lead times to remain flat.
- Forged Steel & Cast Steel Valves – Lead times remain a challenge for these categories.