Tariffs and the PVF Industry
Tariffs and the PVF Industry
US trade deficit and trade practices have been a focus of the Trump administration. Citing these concerns, the President has imposed tariffs under three US laws.
Section 201 of the Trade Act of 1974—Allows the President to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry. Currently it is being applied on U.S. import of Washing machines and solar products.
Section 232 of the Trade Expansion Act of 1962—Allows the President to take action to adjust import of products, that the Department of Commerce finds to be imported into the United States in such quantities or under such circumstances as to threaten to impair U.S. national security. Currently it is being applied on U.S. imports of steel and aluminum, and potentially autos and uranium products.
Section 301 of the Trade Act of 1974—Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce. Currently it is being applied on U.S. imports from China
Since section 201 does not concern supply industry, we will only talk about 232 and 301.
Section 232 had the most impact on the PVF industry. It imposed 25% tariff on certain steel imports. Notable among them were tubes, pipes, ingots, billets and certain semi-finished products used in several PVF supplies.
Here is the timeline of events for section 232 implementation;
- 04/2017: Commerce initiates investigation on effects of steel and aluminum import
- 01/2018: Recommendation submitted to President
- 03/08/2018: President proclaim duties effective 03/08/2018
- 05/31/2018: President permanent exempts following countries from tariffs based on quota agreement;
- South Korea
- European Union
- 08/10/2018: President doubles the tariff to 50% on steel imports from Turkey effective Aug 31, 2018
- Current status: Tariffs are in effect from 03/08/2018.
Countries exempt from tariff can only export so much. The PVF industry saw that most import quotas from exempt countries were exhausted in few months. For this reason, there was little to no pipe in 2018 from countries like South Korea which is a big exporter of A106B seamless pipe.
Section 301 deals with imports from China. Products currently imported from China in the PVF industry are malleable fittings, valve components, brass fittings, ductile iron fittings, stainless steel fittings, stainless steel forgings and wide variety of commodity valves common in the oil patch.
Here is the timeline of the events;
- 08/14/2017: President directs USTR to investigate China’s trade practices
- 08/18/2018: USTR announces it will proceed with section 301 case against China
- 07/06/2018: Stage 1 ($34 Billion): 25% import tariff on 818 US imports from China
- 08/23/2018: Stage 2 ($16 Billion): 25% import tariff on 279 US imports from China
- 07/10/2018: Stage 3 ($200 Billion): 10% import tariff on 5745 US imports from China
- 08/01/2018: President proposed increasing stage 3 tariff to 25% if China retaliates.
- 09/07/2018: President threatens potential stage 4 tariff on $267 billion of US imports. As of this writing USTR has not made a formal announcement on these tariffs.
- Current status: 10% import tariff on stage 3 increasing to 25% on January 1, 2019
Section 301 will result in price increases on lot of commodity fittings, valves, nuts & bolts and semi-finished raw material used in PVF industry.
2018 has been a great year for PVF industry. The higher oil prices and recovery from a long down turn spurred many projects in a very short time. Manufacturers and distributors were very lean in 2017 due to lower demands and were not able to keep up with the demand. Inventory gaps were common and several competitively prices pipes and fittings were hard to source. Domestic manufacturers were having issues keeping up with the demand and a large stock order cycle varied from 3 weeks to 6 months depending on the product. There was also an anti-dumping law suit brought by Bonney Forge and Penn Machine on Bothwell Taiwan. As a result, import forged steel fittings such as threaded & socket-weld couplings, olets etc. were wiped out soon after the law suit. Later on, Taiwan refused to fill any order due to pending law suit. This bridged the gap between import and domestic forged steel fittings prices. Currently 90% of forged fittings in the market are domestic fittings. Trupply is a master distributor of Bonney Forge which positions us uniquely to source forged fittings that our competitors cannot get their hands on.
Most of us remember the anti-dumping suite in 2016 on flange manufacturer that resulted in price increase from 30% to 200% on carbon and stainless flanges. Currently the import flanges are no more than 10% cheaper than domestic flange. Trupply is a master distributor of Weldbend and stock commodity flanges in our Houston warehouse.
There was another significant event with Pantech Malaysia. Pantech is one of the largest Butt Weld fitting manufacture in the world. There fittings are on several AMLs, making them a popular choice in the “approved” fitting category. There are issues going on with the import of these fittings and as a result prices have fluctuated 10-15% in past several months. Currently the import butt weld fitting sells at almost half the price of domestic butt weld fitting. We anticipate that it is only a matter of time when an anti-dumping suite is brought against import of butt weld fitting resulting in price hike on butt weld fittings. However, it is just a speculation at this moment.
Section 301 price increase from January 1st will have trickle down effect on many imports and on domestic PVF products. Several raw materials are used in domestic products which will result in price hike. Couple this with increased demand, several manufacturers have already announced price increase from January 1st. Trupply expects that majority of PVF supplies will be priced higher from January 1st directly or indirectly due to 301 tariffs and due to price increase announcements from domestic manufacturers. We strongly encourage our customers to place orders for projects in hand. Trupply will hold current prices for all orders placed by Dec 25th.
- Asif Ehtesham