Tariffs boost prices for U.S. steel and aluminum producers, costs for manufacturers, report says

Steel tariffs in the U.S. should support the credit quality of American producers with higher domestic prices, volume gains at the expense of imports, and stronger profitability, S&P Global Ratings says in a report published today.

Aluminum tariffs boost the profitability of the four smelters operating in the U.S., with only modest credit benefit to any corporates because of modest prospects for more domestic output, S&P Global Ratings analyst Donald Marleau says in "Steel And Aluminum Tariffs Boost Prices For U.S. Metal Producers, Costs For Manufacturers". Steel prices in the U.S. are up 25%, and the U.S. Midwest aluminum premium hit an all-time high before tariffs were implemented, so profitability downstream already depends on higher prices for fabricated products.

Tariffs under Section 232 of the Trade Expansion Act have supported the competitive position of U.S. steel assets since 2018, along with factors such as consolidating domestic production and, until recently, slower production growth from China. Steelmakers in the U.S. have spare capacity and access to inputs to increase volumes by displacing imports, with the profitable umbrella of higher prices for every ton.

On the other hand, our ratings on U.S. aluminum producers haven’t moved much in the same timeframe, because primary output continues to decline in the face of lower-cost global supply, while downstream aluminum fabricators consume capital to increase domestic output. The U.S. has little unused aluminum capacity that could displace imports, so all-in costs in the U.S. now rival the supply chain disruptions of 2021-2022.

S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).