Most everyone is aware that the United States imposed tariffs on steel and aluminum imports last March.  So how have those tariffs and other countries retaliatory measures affected propane retailers? As broker/dealers of domestic tanks and bulk storage vessels, we’re in a unique position to get first-hand exposure to the impact of the tariffs on propane storage tank pricing and supply.  What we’re 
seeing isn’t pretty;  numerous price increases, unfilled orders and longer lead times top the list of challenges.

Domestic Tanks

After years of price stability, 2018 has been a year of price volatility with domestic tank prices increasing over 30% just since April.  In addition, tank manufacturers are being offered steel on an allocation basis with steel shortages resulting in unfilled orders. 

And it gets worse.  The steel mills continue to set limits on future steel orders and have now established pricing to be “at time of delivery”. Imagine our conversation with propane retailers as we discuss tank pricing,

Your price as of today is $xxxx, but that really isn’t the price you’ll receive.  And oh by the way, we’re unable to tell you what the final price is going to be.

That doesn’t sit well with anyone, but is exactly the position we find ourselves today as a result of the current steel mill pricing policies.

Bulk Storage Tanks

Things are just as challenging for bulk storage builders.  Two weeks before the tariffs were imposed, one of our bulk tank manufacturing partners told us that their main steel supplier had already raised prices 20%. Discussions with the steel supplier at that time made it clear to the tank builder that this would be just the first of several price increases which has proven to be true.  Fortunately for this tank manufacturer, they had some steel inventory already in place so have been able to lessen the impact or delay inevitable price increases.

Allocations have limited steel supply causing new build lead times to stretch as high as 20 weeks in some cases.  To date we haven’t seen any bulk tank builders offer pricing “at time of delivery”, but the idea has been discussed and uncertainty around steel pricing has resulted in 3-5 day expiration dates on new build quotes.

Going forward, bulk tank manufacturers are still very concerned about additional steel price increases and actions they may need to take as their steel inventory is depleted.

What To Expect

History indicates that trade wars do more to worsen an economy than they do to improve it.  The last time a U.S. president imposed sweeping tariffs on American trade partners was in 2002, when George W. Bush introduced a tariff package that triggered a wave of retaliatory import taxes from the European Union.  The tariffs were initially expected to last for three years, but Bush cancelled it 16 months ahead of schedule amid pressure from the EU and the World Trade Organization. A U.S. International Trade Commission study found in 2003 that Bush’s tariffs resulted in a net loss of $30 million annually and the Consuming Industries Trade Action Coalition found that 200,000 workers in U.S. manufacturing lost their jobs as a result of the tariffs.

The current administration seems content for now to stay the course on current trade policies. However, Trump and EU President Juncker spoke last week, just days after the two agreed to halt new tariffs, providing some hope that a trade war can be averted between these two trading partners.

Still, many questions remain.  Will tank prices continue to go up? If so, how high will they go?  How will rising prices affect customer demand? Will allocations on steel supply continue to increase tank lead times? How will all of this affect the used tank market? And will economic pressures lead to an early end to the current tariff strategy as they did in 2002?  We don’t know the answers, but one thing is certain, in an industry highly dependent on steel and other materials affected by the tariffs, there’s likely to be some rough road ahead.

Sources:

Why the U.S. ‘blinked’ last time on steel tariffs – Global News May 31, 2018

Here’s what happened to jobs the last time the U.S. imposed tariffs on steel

MarketWatch April 4, 2018

Bracing for the impact of the US tariffs on aluminum, steel – LPGas July 19, 2018

Trump speaks with Juncker on trade negotiations – Politico July 27, 2018

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