December 16, 2003

WHY STEEL TARIFFS WERE REMOVED

Nucor Announces Raw Materials Surcharge (Nucor Corp., 12/16/03)

Nucor Corporation (NYSE: NUE) states that beginning with shipments on January 1, 2004, all Nucor Steel divisions are instituting a $20/ton raw materials surcharge on all steel mill products. The surcharge has become necessary due to rapid and unprecedented raw materials price increases. The rapid escalation of raw materials cost has outpaced our ability to appropriately react through normal price changes. The surcharge will be adjusted on the third Monday of each month, based on raw material cost changes from the previous month, and applied to shipments on the first day of the following month.

The unprecedented increase in the cost of raw materials used by the world's steel producers (scrap, coke, iron ore, freight, alloys and energy) can no longer be absorbed through normal price increases.

The cost of steel, and in particular of certain specialty steels, has increased as much as 50% over the last few years. In part this was due to the tariffs, but it was also due to issues that had nothing to do with the tariffs. Demand has grown along with the economy and the dollar is now much weaker against the Euro. Steel suppliers (who are not unbiased, but who are also knowledgeable) say that it will be six months or more before steel users see any relief from the pulling of the tariffs. In the short term, it is more likely that the price of steel products will increase, than decrease. (It is worth noting, however, that this notice was sent to us by a Nucor competitor.)

Posted by David Cohen at December 16, 2003 11:55 AM
Comments

Mr. Cohen;

So we can read this as pointing out that not only were the steel tariffs a domestic and foreign political loss, their putative economic benefits were a mirage as well? Quite the trifecta of policy failure there.

Posted by: Annoying Old Guy at December 16, 2003 2:23 PM

Well, the steel tariffs were a very blunt instrument. But no joy to the free traders, as there is not now and never will be a free market in steel.

Nucor is not an integrated producer; it is tied to the price of scrap, which has been booming.

Posted by: Harry Eagar at December 16, 2003 2:38 PM

With the rise in Chinese manufacturing there's been a boom in freight shipment, and now there's a shortage of cargo ships. Imported bulk raw materials are getting much more expensive as a result.

Posted by: pj at December 16, 2003 5:36 PM

China is now pulling the world economy out of recession. for years economists would talk about who will be the engine that will pull the world economy up.

Posted by: Robert Schwartz at December 17, 2003 9:11 PM

China is now pulling the world economy out of recession. For years economists would talk about who will be the engine that will pull the world economy up. Europe and Japan no longer are able to pull. It is good that China can. Next India.

Posted by: Robert Schwartz at December 17, 2003 9:12 PM
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