Letter from James J. Coulas Jr. President of Weldbend in regards to Article 232 tariff.
As of this writing, it appears the stage is set for a 232 (national security) tariff on the steel industry. At first blush, it appears that the 25% 232 tariff does not affect carbon steel welding fittings or flanges to a great degree.
However, if you look at the entire picture, the 232 tariff will affect our industry -- but to what extent is still to be seen. Although the 232 steel tariff does not affect the fitting and flange industry, it does affect tubing for our fittings. In our manufacturing here in the Chicago area over the years, Weldbend has solely used American made pipe for ½" through 24" standard wall and most of our extra strong long radius 90 degree elbows. We have built up a long and loyal relationship with several pipe mills here in America, so we feel that we are in a better position than most when it comes to procuring USA made pipe for fittings.
For those US companies whose fitting production consists mainly of offshore procured pipe material, if they continue to manufacture here in the US, we feel they will have somewhat of a tougher time convincing US mill s that they should get US-made pipe. If they don't, then their fitting prices will be up 25%. On the other hand, as of late, we have all seen the price of domestically-manufactured pipe rise, and I would expect that the domestic manufacturers of steel pipe will again raise their prices somewhat to give them a better profit margin on their product, but also keeping their prices below the 25% increase that will be imposed on the imports.
The flange market is a little different. Most of the forging companies that forge carbon steel flanges in America buy their steel billet in America from mini-mills, so with long relationships between the mini-mills and forging companies, I would expect there will be a good relationship with forging companies that have been loyal to those US steel makers. We all know that all steel is not being made, or can be made, in the US. However, much of the larger billet for making higher pressure flanges comes from overseas and cannot be obtained in the US, or at the price level that flange forgings dictate. Therefore there could be a sizeable increase in large diameter higher pressure flanges, because billets are covered under the 232 ruling.
The real unknown scenario, and we are all guessing at this time, is that if there is a general tariff on all steel products from offshore, that would change the whole dynamic of fitting and flange manufacturers in the US, because I know of no fitting and flange manufacturer in the US, including Weldbend, that does not use some offshore steel material in the manufacture of their branded product.
As I wrote at the beginning of the year telling you prices in general were going up, and the joker card in all of this was the 232 ruling, it is clear now what hand is being played. Generally, I expect prices to increase for both fittings and flanges -- but we first must see how all this will affect our industry. I would be surprised if oil and gas companies cancelled projects. They might scale back, but with the favorable feeling in Washington toward American companies and the oil and gas industries, I would think the oil companies and gas companies would want to get as many of their projects completed as soon as possible, even at higher prices, before the possibility of a change in Administration in three years.
As I told you in past letters, Weldbend has purchased millions of dollars in new equipment in the past year and a half. Some of the equipment is now being installed and all other pieces w ill be installed by late March of 2019. This was all purchased with the desire to keep the production of fittings and flanges in the US and to also bring some of the manufacturing back to the United States. Visitors to our plant just twelve months ago will not believe what has been done in the last six months and what will be installed in the next twelve months. By far, we are the most modern fitting and flange manufacturing plant in all of the Americas. We are taking a back seat to no one.
In closing, people must not panic. The worst that can happen is that prices will be a little higher for certain products. It would be wise for all distributors to align themselves more closely with American manufacturers of fittings and flanges because in the long run it is your best and surest way to insure quality and uninterrupted product supply.