President Bush's steel tariffs come at a bad time for screw and barrel makers, as they struggle to emerge from the big recession. But the higher steel prices sure to result will not be a crippling blow, they say.
The reason? A lot more goes into a screw than just steel.
``The steel is the lowest cost of the whole process. It's really labor and welding and machine time,'' said Thomas Doland, president of New Castle Industries Inc. Steel accounts for about 10-12 percent of the cost to manufacture a screw, industry officials said.
In March, the Bush administration announced it was slapping tariffs on many types of imported steel, ranging from 15-30 percent. Steel industry observers believe domestic steel makers - after a string of bankruptcies and plant closings - will take full advantage and hike prices 30 percent.
Finished goods, such as imported screws and barrels, are not included in the new Bush tariffs.
``The timing's poor,'' said Gunther Hoyt of Xaloy Inc. in Pulaski, Va. ``The industry's just nudging back up. Slowly there is demand for new equipment and refurbished equipment. It just makes our product even more expensive.''
Screw makers believe they will have to eat the higher costs, since the still-weak market probably will not accept price increases.
Machinery makers also will get nicked, as tariffs rise for steel for machine bases, sheet metal and other components. But steel only accounts for 1-3 percent of the cost to make an injection press or other plastics machine, equipment officials said; many parts such as machine platens are cast iron.
Screws and barrels will be hit harder.
``It's not a huge issue, but it's certainly a move in the wrong direction,'' said Jeffrey Kuhman, president of screw maker Glycon Corp. in Tecumseh, Mich. He said screws are in a recovery mode. ``We need a period of healing here.''
Some industry officials say Bush could end up damaging global free-trade talks, as steel-producing nations in Europe, Asia and South America react to the steel tariffs.
Hoyt, Xaloy's vice president of sales and marketing, said the tariffs, coupled with a strong U.S. dollar, could cost U.S. jobs.
``This could lead us to increase importation of screws from lower-cost factories. Is that what we want?'' he said. ``The finished product is allowed to come into the U.S., and the raw material gets hit with a 30 percent tariff. There's no logic to it.''
The tariffs also will hurt makers of flat dies, used to make cast film, sheet and extrusion-coated products. But again, like screws, dies involve a lot of skilled metalworking and finishing.
Extrusion Dies Inc.'s steel contract had an April review. ``This is going to be another influence in terms of the upward pressure, and what the market provides in terms of how much of that increase is going to be passed along,'' said Timothy C. Callahan, president and chief executive officer of the Chippewa Falls, Wis., die maker.
Cloeren Inc. in Orange, Texas, is under contract until September. President Peter Cloeren Jr. is bracing for higher steel prices, but he said steel only accounts for 3-5 percent of the cost to make a die.
``Nobody likes to see prices go up, but if steel goes up across the board, it's going to affect everyone the same,'' he said.
Meanwhile, executives of companies that assemble injection presses, extruders and other primary machines in the United States downplayed the impact of tariffs. Equipment makers are waiting to see how far domestic steel makers boost prices.
Robert Ackley, president of Davis-Standard Corp., said the tariffs should have no impact on his company in the first half.
``The second half of the year there will be a slight impact. Once all these tariffs are in place, it could impact our costs by 1-2 percent,'' Ackley said in late March at the Pawcatuck, Conn., headquarters of the company, which makes extruders, blow molding machines and film equipment. Davis-Standard makes screws in Pawcatuck and barrels at a plant in England.
Harold Faig, vice president of Milacron Inc.'s Plastics Technologies Group, said a full 30 percent rise in steel prices would only increase costs a few percent, mainly hitting welded-steel machine bases. ``That's because most of the steel on plastics machinery today is either specialty steel or it's ductile iron,'' he said.
Van Dorn Demag Corp. President William G. Pryor said that, right now, a few percent does hurt, when you can't pass it on to customers. The Strongsville, Ohio, company buys fabricated machine bases for its injection presses. The company buys cut steel and fabricates its own manifold blocks.
Pryor said the strong dollar is what really hurts, because it makes U.S.-made machinery more expensive compared with imported machines from countries with weaker currencies. ``They will use that to their advantage to try to gain market share,'' he said.
Earlier this year, the Society of the Plastics Industry Inc. of Washington issued a new trade policy urging U.S. intervention to lower the value of the dollar.
Sandy Guthrie, president of extruder maker Merritt Davis Corp., supports SPI's move. Merritt sells machines outside the United States. But, he said, ``exports are tough; you've got to pay a premium.''
Regarding steel tariffs, Guthrie agreed with other executives that higher prices probably will have minimal impact. ``I'm more afraid of the retaliation issue,'' he said in an interview at company headquarters in Hamden, Conn.
Still, Guthrie said, the timing is bad. ``If our bases go up 10 or 15 percent, it's going to go directly into our bottom line. We can't pass it on.''
Meanwhile, machinery executives are hoping another Bush action - the stimulus package - will encourage processors to buy machines. By changing the depreciation write-off schedule for new capital investments, the legislation gives a tax incentive for machine buyers.
``If more people knew about it, it would help machinery sales,'' Guthrie said. ``It's a full-blown tax savings.''
