trending Market Intelligence /marketintelligence/en/news-insights/trending/a3ws7vhflfvc1pkuhaygjq2 content esgSubNav
In This List

Steel, aluminum tariffs threaten US energy sector

Blog

Europe: 5 key OTT trends to watch in 2022

Podcast

Next in Tech | Episode 50: InfoSec spending up, again…

Blog

Broadcast deal market recap 2021

Podcast

Next in Tech | Episode 49: Carbon reduction in cloud


Steel, aluminum tariffs threaten US energy sector

President Donald Trump stoked tensions with trading partners and outraged much of the U.S. energy industry March 1 when he announced plans to impose tariffs on steel and aluminum imports, a move likely to increase costs to build wind turbines, solar panels, pipelines and other infrastructure.

Trump said the duties, which at 25% for steel and 10% for aluminum are stiffer than his own commerce secretary recommended, are aimed at improving America's national security.

"People have no idea how badly our country has been mistreated," Trump said March 1. "We're bringing it all back."

The pain, however, will be felt not only by foreign steelmakers, according to industry participants and observers, who said the new tariffs could have significant consequences for the renewable energy and oil and gas sectors.

LNG industry representatives railed against the planned tariff, which they say will damage the viability of proposed export facilities vying to make the U.S. a leading player in the global gas market. LNG Allies, a Washington, D.C.,-based trade group, said in a letter to Trump that the U.S. "could easily lose out" on global market share as increased costs for already pricey export terminals threaten the viability of new projects.

Duties that limit access to international steel suppliers could also cause delays or cancellations for U.S. pipeline projects, said Cathy Landry, a spokeswoman for the Interstate Natural Gas Association of America, which represents pipeline operators. "The type of pipe and the steel used to make it are niche products that aren't available off the shelf or even from a wide variety of manufacturers," she said in an email.

The Commerce Department says that approximately a quarter of steel pipe and tube purchased by companies in the U.S. in 2016 were imports. Jack Gerard, president of the national oil and gas trade group API, has argued that import penalties will raise costs for American businesses across all sectors. Oil and gas companies in particular, he said in a Feb. 16 statement, rely on steel imports for a majority of their operations, such as drilling and building refineries and terminals.

Renewables impact

The impact on the renewable energy sector could be more severe. Steel tariffs will likely hit the wind sector's turbine supply chain hard, especially for U.S. wind tower makers who sell directly to turbine manufacturers. Clean tech manufacturer Broadwind Energy Inc. CEO Stephanie Kushner warned analysts on Feb. 27 that a widening steel price differential would raise pricing and margin pressure for American tower makers if they have to compete with cheaper towers made in Asia.

"If the import of steel plate is shut off, U.S. manufacturers are going to increase their prices," Broadwind's investor relations and corporate communications director Joni Konstantelos told S&P Global Market Intelligence.

Broadwind is collaborating with other tower manufacturers to petition to extend for an additional five years anti-dumping duties on Chinese and Vietnamese wind towers, which were first enacted in 2013. If the Trump administration declines to extend the penalties, that will have a "detrimental impact on downstream manufacturers," Konstantelos said.

Wind turbine manufacturers, which already faces growing competition from Europe's biggest wind players, has been mum on how steel tariffs and increased tower prices would impact their businesses. Broadwind's biggest customer, Siemens Gamesa Renewable Energy, did not respond to a request for comment on possible implications from duties. Representatives for Vestas Wind Systems A/S and General Electric Co. declined to comment on possible implications from duties.

Added costs for solar

U.S. solar cell and panel manufacturers, already battered by low-cost imports from Asia, could also suffer. Trump already slapped fresh tariffs on imported cells and panels, penalties that few expect to boost domestic manufacturing. Now, duties on steel and aluminum "could tip the delicate margin balance of utility-scale developers" by increasing costs for suppliers that make solar modules with aluminum frames and steel mounting equipment, said Paula Mints, chief analyst at SPV Market Research.

Constantino Nicolaou, the CEO of PanelClaw Inc., a Massachusetts company that makes mounting equipment for solar power systems, said he will be watching how the duties affect the cost of imported finished products as well as prices for domestic steel.

"Some of our installation companies have told us that the increase in the price of steel would further add to the costs of solar projects," Dan Whitten, vice president of communications at the Solar Energy Industries Association, said in an email, adding that "it could be a significant added cost."

The tariffs on imported solar cells and panels, which Trump approved in January, were ostensibly designed to encourage more U.S. manufacturing. However, "adding any costs to the manufacturing process is probably not a great incentive for manufacturers" to increase production, Mints wrote in a Feb. 28 client report.

Some suppliers announced plans to beef up their domestic capacity in the wake of the solar tariffs. JinkoSolar Holding Co. Ltd., for example, said it would open a panel assembly plant in the U.S. It is not immediately clear whether the aluminum tariff will affect such plans. JinkoSolar uses aluminum in its manufacturing process, according to an SEC filing.

War fears

The lone beneficiary of tariffs in the energy sector could be metallurgical coal used to smelt steel. Import duties would have "an overall positive impact on U.S. metallurgical coal demand," Ramaco Resources Inc. President and CEO Michael Bauersachs said previously.

The big question now for energy companies is who gets an exemption and of how much, said Kevin Book, a veteran observer of Washington's energy politics. "There isn't much room for energy to get a break without putting new pain on someone else's balance sheet," he said.

The concern now is that Trump may be leading the U.S. toward a full-scale trade war with adversaries and allies alike.

"Unfortunately, I think ... what we are going to see is not just more uncertainty and more hostility but more concrete trade actions," which could lead to "a much broader set of trade frictions with China and other major trading partners," Eswar Prasad, a professor of trade and economics at Cornell University and a senior fellow at the Brookings Institution, said Feb. 28.

It would not be surprising, Wilbur Ross, the Commerce Secretary, said before the penalties were announced, if other countries "bring a [World Trade Organization] action and/or take other measures" in response to steel and aluminum tariffs.