Back in March D+M Metal Products sent out a letter to our customers. This letter discussed changes in the price of steel, specifically increases in the price of steel and how that would affect them and us going forward. Since that time, the Trump administration has announced further tariffs on steel and aluminum. How do these tariffs and domestic production of steel affect the price of the products we manufacture for our customers? What is the outlook on the price of steel moving forward?
On June 11, 2018 The American Iron and Steel Institute (AISI) reported that U.S. steel mills shipped 7,798,326 net tons in April. This was a 6 percent decrease from the tonnage they shipped in March of 2018. All of the following were down 6 percent: cold rolled sheets, hot dipped galvanized sheets and strip, and hot rolled sheets.
Demand for steel remains high, so steel imports were up 12 percent from March. The U.S. imported a total of 3,738,000 net tons (NT) of steel in April 2018, including 2,860,000 net tons (NT) of finished steel. Year-to-date totals on imported steel were also up - 1.1 percent for steel and 2.3 percent for finished steel up over steel imported year to date in 2017.
“Key finished steel products with significant import increases in April compared to March include line pipe (up 87%), heavy structural shapes (up 57%), tin plate (up 53%), reinforcing bars (up 47%), hot rolled bars (up 39%), sheets and strip hot dipped galvanized (up 24%), sheets and strip all other metallic coatings (up 23%), standard pipe (up 20%), cut lengths plates (up 16%), and plates in coils (up 11%). Major products with significant year-to-date (YTD) increases vs. the same period in 2017 include plates in coils (up 43%), hot rolled sheets (up 40%), line pipe (up 31%), oil country goods (up 25%), mechanical tubing (up 23%) and hot rolled bars (up 12%).”
A huge spectrum of American companies need steel to manufacture their products. This steady demand has already lead to higher prices, but the increasingly complicated trade situation with America’s trade partners Mexico, Canada, and the European Union make things even more tangled. The U.S. typically imports about a third of its steel, but that’s unlikely to remain true with the added tariffs Trump has just imposed.
In March the U.S. Government announced that it would be imposing tariffs on imported steel and aluminum. This caused the price of aluminum to rally. Initially Canada and Mexico were exempt from these tariffs, but as of the end of May, President Trump made it clear that there would no exemptions for Canada, Mexico, or the European Union. U.S. companies will now have to pay 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.
As a result, E.U. Commission Vice President Maros Sefcovic announced that as of July it will begin imposing duties on a list of U.S. products. Canada also announced retaliatory measures. A trade war has begun.
How much tariffs on steel will curb imports is not yet known. Globally, steel prices will likely go down minus U.S. demand (China ramped up its steel production 5 percent in April and exports soared). That’s good news for foreign manufacturers. In the United States, it’s a different story. Already the price of U.S. Midwest domestic hot-rolled coil steel has risen almost 39 percent year to date - good news for American steel mills. For the manufacturer, it’s a different story, though. It costs more for the manufacturer to produce, and the market for his products just contracted considerably.
As of now, there are not enough American steel mills and aluminum smelters producing and competing with each other to drive the price of steel down. How soon this may change is still unknown. It’s also unclear how President Trump’s strategy of hard negotiating with the U.S. trade partners will continue or for how long. All of this means that any industry or company that relies on steel or aluminum will be held hostage to unpredictable pricing for the foreseeable future.
Manufacturing, both in Michigan and in the United States, is experiencing a renaissance. It’s a very exciting time to be a part of this industry, both in terms of technological advancement and overall profitability. There are a number of growing pains manufacturing is experiencing, however, and one of the largest is a shortage in labor. In order to optimize the economic future, Americans and Michiganders especially will need more young people to consider manufacturing as a career opportunity and focus on acquiring the skilled trades the industry needs to succeed. The Millennial generation has an important part to play in 21st century manufacturing.
In the most recent NAM Manufacturing’ Outlook Survey more than 70% of companies listed their greatest challenge as recruitment and retention of their workforce. The need for young workers is so great that the State of Michigan is now stepping in with an additional $100 million in funding for specialty education programming funding. Employers are also investing in training for their workers to assure they have the skill sets they need.
While there is less need for unskilled labor, for almost any skilled job across the industry workers are in great demand. In April Michigan Manufacturers Association President Chuck Hadden stressed this: “Welders — I can get almost any of those people jobs any place in the state,” Hadden said. “If you’ve got a skill of some sort, (employers) will help work with you. If you’ve got a skill, I’ll find you a place you want.”
There are a number of reasons for this skilled labor shortage. Low unemployment and Baby Boomers retiring are two of the biggest. Why Millennials aren’t flocking to fill those empty positions in manufacturing is complicated, though. Some of it can be blamed on the industry’s image problem.
Michigan’s manufacturing birthed a middle class lifestyle for unskilled workers, and every sector of the state’s economy benefited. However, for decades now young people have been encouraged to shun jobs in factories in favor of pursuing white collar jobs. They’ve come to associate manufacturing jobs with older generations and think of them as boring, outdated, and dead-end. Many young people want jobs that will fulfill them personally, and they do not envisualize that happening in manufacturing.
Today’s manufacturing jobs are not the same as the ones available in 1960 or 1980, though. With the advent of automation, more of the jobs available require skills and training. They are personally challenging and often interesting and engaging. They’re also well paid. Few Millennials emerge from college without student loan debt, but manufacturing offers them the opportunity of work without accumulating debt at a rate of pay many college graduates can only dream about.
For example, the Michigan Advanced Technician Training Program, also know as MAT2, is available in a number of colleges statewide. The MAT2 allows employers to sponsor student workers who study and work at the same time. When they graduate with degrees in mechatronics, IT, or product design they go to work for the companies that sponsored them for at least two years. This is a win-win for both companies and workers. Employers get the skilled workers they need for a reasonable investment and workers acquire their educations without acquiring tens of thousands of dollars in student loans - and they have a job guaranteed upon graduation.
The MAT2 is only one example of incentives companies are giving in their search for skilled employees, of course. There are many others. If you are young and undecided on your career choice, consider pursuing a skilled trade. For Millennials with energy, drive, and commitment, manufacturing offers a great deal. Going forward into the 21st century, Michigan needs you.
Training is vital on the job, and there are many types of training. Safety training is always crucial in manufacturing, but organizational training is equally important for maintaining order and promoting efficiency and profitability. For these reasons, D+M Metal Products is retraining both our plant and office staff in the 5S process. We consider 5S training to be another investment in our success.
5S is “a system for organizing spaces so work can be performed efficiently, effectively, and safely.” In the West this is often referred to as Lean Manufacturing, but this method of organization began as a part of the Toyota Production System as a way of making Just In Time (JIT) manufacturing possible. The main focus of 5S is to return the workplace to a clean, organized state. This has many benefits for employers, for workers, and for customers.
The term 5S comes from five Japanese words that, in English, translate to:
In this 5-step process, workers sort what is necessary from what is unnecessary in a workspace, eliminating what isn’t needed. Next, they organize what is left, clean the entire work area, create a schedule for the regular cleaning and maintenance of the work area, and sustain this cleanliness and organization over time.
The 5S process succeeds because a messy, cluttered space creates all kinds of obstacles to efficient work. The 5S system is not just establishing order, it’s a commitment to maintain order over time. This is not only true in manufacturing, but in every workspace.
There is an additional important S step that many businesses choose to add to the 5S process. That sixth S is “safety.” Following the 5S process will improve the workplace and make it inherently safer, but an added focus on maintaining safe conditions at work helps employees notice potential hazards and eliminate them. This further reduces the risk of a workplace accident. D+M Metal’s employees have incorporated the sixth S into their rounds in the plant.
It’s important to understand that 5S success isn’t possible without employee commitment and involvement. Educating them about 5S is only the first part. Employees need to be involved in every step of the process. This includes sorting, elimination of waste, tagging, and consulting. After 5S has been implemented or, in D+M Metal Products’ case, retrained, workers need to be continuously observing their workspace and determining if what has been implemented is working or if the workspace can be improved to make it more efficient, productive and safe for everyone.
We at D+M Metal Products believe that the 5S process is a tool for everyone to use to help make our workplace better. That is why we are focusing on 5S training in 2018.
As many of you may be aware, steel prices are rising. U.S. domestic steel mills have been implementing price increases since the end of 2017 for the steel D&M Metal Products uses to produce parts. Up until now these increases have been within a somewhat reasonable range, but the price increases that have been implemented for March are now so high that we are unable to hold our current pricing.
There are a number of reasons for the price increases. As is so often the case with economics, they can be explained by lowered supply and increased demand.
U.S. steel output has been lower in recent years. Domestic steel producers have struggled to compete with foreign steel mills - especially Chinese mills - that have ramped up production and sold steel at lower prices. Foreign steel makes up about 25 percent of U.S. consumption.
A strong U.S. economy and a rebounding oil and gas industry have meant there is a greater demand for steel overall. This is why steel prices are already higher than they have been in recent years. Currently supply is tight and there is low warehouse inventory of steel. With less steel available but more demand for it, U.S. mills are in a stronger position to force material increase onto industrial manufacturers.
Additionally, President Trump’s recent announcement of his intention to impose tariffs on imported steel and aluminum has caused further uncertainty about the price of steel going forward. Tariffs of 25 percent on foreign steel will, of course, drive prices upward, but it’s unclear which countries will be subject to the tariff. Mexico and Canada will be temporarily exempt, but no one knows for how long.
Already some U.S. steel mills have begun the process of firing up their blast furnaces in order to restart production. Greater production will have a dampening effect on price, but that process can take a long time. In the interim, there may be considerable fluctuation in the price of steel. In the near term we at D&M Metal do not see any stabilization in the pricing of steel.
How does this affect you, our customers? For purchase orders which we have open and have material purchased, D&M Metal will honor the pricing that is in place. We will need to review pricing as new orders or releases come in and may need to make adjustments based on our inventories for your specific products. It will be more challenging to provide you the information you will need to adjust your product cost when the market is constantly adjusting. We will do our best to be as fair as possible.
This is not the type of news that anyone wants to hear, but be assured that we appreciate your business and will work to be as competitive and responsive as we can. If you have any immediate questions, please call D&M Metal Products’ president, Bob Buist. He will be happy to talk to you about your concerns.
Every year the Occupational Safety and Health Administration (OSHA) cites companies in the metal fabrication industry for violations, costing them millions of dollars in fines. The reality is that unsafe working conditions cost both workplaces and workers far more money indirectly as well. Onsite accidents are expensive in terms of workers’ compensation, medical treatment, damage to equipment and buildings, and lost work time. Working in the metal fabrication industry can be physically challenging, but in a shop that respects federal regulations and implements the proper safety procedures and equipment, it should not be dangerous.
Workers in the metal fabrication industry are at risk for a number of injuries, including:
The good news is that, since the implementation of OSHA in 1971, workplaces have been getting safer as employers have invested in purchasing safety equipment. Without the proper safety tools like masks, respirators, eye and ear guards, gloves, adjustable workstations, barriers, loading dock equipment, and trolleys, workers are physically vulnerable. If workers are not trained to use that equipment and required to use it all of the time, however, it will be ineffective.
Shop managers must first make sure that all safety equipment is installed and working correctly. Employees should have tools that are proper sized and easy to use. The facilities in which they work should be well lit and free of clutter. Safety rules and protocols should be posted in communal areas.
The staff must be trained continuously on how to use the equipment. This will require shop managers to keep regular records to ensure that new hires are made aware of shop’s safety protocols and that the staff as a whole has periodic refresher courses on safety, weekly if possible. There should be clear communication from management on its expectations from employees and what the consequences are for workers who do not follow safety protocols.
Finally, the entire shop needs to be inspected regularly. Shop managers should make daily rounds to make sure the safety equipment is in place and functional and employees are utilizing it correctly. When small accidents or near misses occur in the shop, managers need to walk their employees through what happened and point out any missteps in protocol or neglect of safety. A record of problems should be updated along with the steps that managers have taken to correct them.
A shop that makes a commitment to creating and maintaining safety protocols will experience fewer workplace injuries, accidents, and losses. We at D+M Metal Products take safety seriously, and our efforts to ensure a safe work environment and avoid injuries have been recognized. Last April we were pleased to be awarded the Safety Award of Honor by the Fabricators & Manufacturers Association, International (FMA) and CNA. We believe that safety regulations are in place to help everyone - workers, employers, and the industry as a whole. A safer shop is a better, more productive, and more profitable shop.
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