MRC Global InSight

Effects of Government Actions by Product Group

Stainless Steel PFF

Welded Pipe

Since July 2017, raw material price increases have amplified surcharges caused by government actions. Domestic coil manufacturers continue to raise prices as raw material costs increase. Section 232 put upward pricing pressure on coil imports. Surcharges have increased 78% on 304 and 83% on 316 with mill deliveries extended from 4 to 6 weeks to 8 to 14 weeks.

In addition, domestic manufacturers imposed a freight increase of $0.04/lb. in March of 2018. Shortages of electrodes have added another surcharge of $0.036/lb.

Seamless Pipe

Since July 2017 and the implementation of Section 232 and the 25% tariff, U.S. and European pipe prices are up 22% to 38%. Chinese pipe prices are up 30% to 40% for the same timeframe. Price increases on raw material has only amplified these surcharges, which have also increased. Stainless steel seamless surcharges for 304/L are up 60% and 316/L has doubled. Electrode surcharges due to shortages will also be applied to seamless pipe pricing.

Valves & Automation

While Section 232 did not directly impact valves and valve automation, the rise in steel prices has put cost pressure on the few remaining U.S. valve manufacturers. It is also important to note that many cast valves are either manufactured in China or are manufactured using castings from China and then assembled and tested elsewhere. Therefore, if valves are produced outside of China, changes in foundry capacity and lead times in China as a result of other actions implemented by the Chinese government can have a far-reaching impact on valves sold in the global market.

Specifically, the Chinese government has begun enforcing strict pollution control standards on industries that cause the largest amount of pollution such as steel manufacturing and casting foundries. Many foundries are being forced to invest in pollution control equipment. This new expense has led to notable price increases to recoup the cost. Foundries that cannot afford the new equipment have closed, reducing casting capacity.

Add these new regulations to a change in the exchange rate between USD/RMB of approximately 6% since 2017 and an approximate increase of 50% to the price of the scrap steel used for castings, and the Chinese valve prices continue to rise and foundry capacity continues to fall.

On top of pressure from these market conditions, an imbalance of cost of living increases versus wage increases for factory workers has caused labor shortages across the country. Many people have begun relocating from high cost of living, developed areas to under-developed regions where the cost of living is more in line with their wages. As a result, many valve manufacturers experience a constant turn over of employees further limiting capacity in an already tight market.