Global Fastener News

FASTENER HISTORY

January 12, 1982 FIN – The Reagan Administration let the special duties on most imported nuts, bolts and screws made of iron and steel expire on January 6.
The surcharges, set during the Carter Administration in 1979 for three years to allow U.S. fastener makers time to adjust to foreign competition, brought the duties on the fasteners up to about 15% on all of the items covered. Tariffs on the fasteners will now revert to their pre-1979 rates of from two-tenths of 1% to 12.5% on most items.

Letting the duties lapse was at the recommendation of the International Trade Commission.

Fastener imports came to $330 million in 1980 and $165 million for the first half of 1981.

The U.S. Fastener Manufacturing Group, the industry segment in a consortium also including several unions which had appealed for a three-year extension of the special duties, “may go on informally, but I don’t think it will conduct any more business,” its chairman Bob Lincoln told FIN.
“I’m not sure what the industry is going to do next,” Lincoln – the chairman of Mite Corp. – went on. “I don’t think the issue is entirely dead because I think the preparedness aspects of it will possibly come into play.”
That aspect, the call for a “Section 232” investigation of how increasing dependence on imported fasteners will interfere with U.S. ability to meet national defense needs, would have to be initiated by either the Commerce or Defense Departments. A group of senators led by Ohio’s John Glenn, have recommended such an investigation.
Lincoln rated a Section 232 investigation a good possibility.
“With the tariff coming off it will make a certain amount of additional merchandise coming in from abroad competitive in this market,” Lincoln told FIN. “It certainly can’t help the domestic industry.”

The Reagan Administration’s move was not unexpected, Lincoln said. “It is the fundamental attitude of not only this administration, but the previous administration and even before that. They seem to have been persuaded that there is such a thing as free trade and that it is a good thing,” Lincoln observed. “It is very difficult to persuade them that there is no such thing and consequently that unilaterally cutting tariffs just doesn’t work. They have a very ‘other cheek’ attitude toward trade matters.”

“Also, I think, it’s easier,” Lincoln speculated. “I think people are fundamentally lazy and it’s a lot easier to have a free trade policy than to have bilateral agreements with the various countries to try to maintain a reasonable balance of trade with each one of them. It is easier to walk away from the whole thing and let the chips fall where they may.”

“Of course, meanwhile the industrial base of this country is being badly damaged,” Lincoln contended.

Is there anything the fastener industry can do at this point? “I don’t think so,” Lincoln responded. “I think the industry has done all it can do. The whole point is that the situation arises not principally from matters within control of the industry.”
“The principal problem is the price of steel and there is not a hell of a lot the industry can do about steel pricing and that really is the major factor in the cost differential,” Lincoln added. “Until there is some outside force that can correct that situation, the fastener industry is kind of stuck.”
The U.S. steel industry’s prices “are not competitive with the rest of the world and they’ve got a fence around us right now so the rest of the world sells to us at U.S. prices,” according to Lincoln. “Foreign producers are very aware of this and realize they are not under great price competition so far as wire rod is concerned.”
“So, we are paying 20% or so more for wire rod in the U.S. than anybody is paying anyplace else in the world,” Lincoln said he finds. “Since wire rod is half of the cost of the fastener, it’s pretty hard to compete with anybody.”
“In those areas where U.S. mills still produce a lot of steel, they can maintain reasonably competitive prices,” Lincoln told FIN. “But in areas like wire rod, which is not a big tonnage item to start out with, they are just not competitive.”

Rech: Too Soon to Tell on Price Cuts

It’s too soon to tell what the effect will be, importer Dick Rech told FIN. “If we have a reduction in the duty we will ultimately have a reduction in the cost of the product,” the president of the Reynolds Fasteners division of Athlone Industries Inc. said. “But there are so many other factors, other expenses, that it is hard to tell if we will indeed end up with a lower product cost.”
“People tend to think of the reduction in terms of 15% to 5 1/2% and that is based on the FOB cost of the merchandise, not the delivered cost,” Rech explained. “So, on the whole broad range of products we carry, we see an average difference of 7%.”
“That difference could be taken up in currency in Japan in a matter of a month or two. If the dollar becomes weaker that will dissipate the reduction.”

Rech pointed out that even when higher duties were on domestic standard fastener products were having trouble competing. “Either they were having difficulty competing or they chose not to make them,” he commented.
“This kind of thing has a tendency to be overblown,” Rech added. “Also many of the importers carry substantial inventories. If they function the way we do, they will average in newly arrived material at the reduced duty with material they have on hand, so I don’t believe you will see any precipitous drop in prices.”

Sackheim: Less Money for Same Work

“For the whole industry it’s going to mean that we are going to have to sell more product to do the same volume of business,” importer Ron Sackheim told FIN.
“Our industry, unfortunately, sinks to the lowest pricing level,” Sackheim commented. “Therefore, if a keg of nails was being sold for $100 and the same keg will now sell for $90 and I’m keeping my margins the same, I’ll have to sell a little more than a keg now to get my $100 sale.”
“Say somebody makes a 10% profit,” Sackheim explained. “At $100 he’s got $10 profit, but now he’s got only a $9 profit, which gives him one dollar less to pay overhead for the same amount of work.

“I think that prices overseas during the nest six months will be moving up,” Sackheim predicted. “They will move up to take advantage of the lower duty … not overnight.”

My partner, Harold Sohrauer, said today that they have transferred hundreds of millions of dollars out of the U.S. Treasury to the sellers abroad. If the importers were paying 15% to the U.S. Treasury, we should take advantage of it.”

Sackheim agreed that during the interlude before the overseas manufacturers raise their prices, importers could be building up inventory at a lower price – if they have the money to do it.”
“Now, I’m making a bunch of assumptions that the price is going to go down,” Sackheim acknowledged. “But, I’ve been in this industry a number of years and I personally have always seen it go to the lowest level. If everybody would hold their margins, some nice profits could be made.”

Thompson: National Defense or Dumping Alternatives

“People don’t buy from us because of the price differential,’ the sales manager of the Industrial Fastener Division of Bethlehem Steel told FIN.. “For whatever reason, the distributor wants to do business with a domestic manufacturer and is willing to sell on service and quality rather than strictly on price,” Marvin “Tommy” Thompson finds.

When the higher duty started in 1979 Bethlehem experience a significant sales rise, Thompson reported.
But that was not because of the price differential was sufficient to cause them to buy domestic, Thompson commented. Distributors “had a concern about sources of supply. If the differential became great and there was less supply of imports, then they may want to buy domestic product.”

After six or eight months, they found there wasn’t any reason to worry,” Thompson recalled. “The source was still they and their prices from importers had not increased enough to bring a change in attitude so they went back to buying at close to 50% of what they had been buying at.”
“Usually these things turn out to be a perceived difference, rather than a real difference,” Thompson noted.

Give or take 5% either way, Thompson told FIN that imported products have been – on average – 30% below domestic prices. Nuts would be 40% to 50% less, but some sizes of bolts, such as structural bolts, might only run 15% to 20% below domestic.

Manufacturers had worked hard to keep the 15% tariff on, Thompson said. “We had hoped the president would see the need, from the National Security standpoint, until we could see the effect of the money we had invested in equipment. Clearly, we are not going to get the opportunity to pay it off. That is the discouraging aspect – putting more money into more modern equipment and not having sufficient protection time to pay off that investment.”
Thompson added the loss of more time “undoubtedly will reduce the incentive of domestic manufacturers to continue to put money into equipment and allow ourselves the opportunity to get competitive. It’s a pretty big investment. The payback is relatively small between a four-station bolt maker and a five-station high speed bolt maker. The payback may take you several years.”

The 1976 Section 232 study showed there was a serious national defense problem and that study was reintroduced for the final decision in early 1979, Thompson pointed out.
Late in 1978 the decision came out of the treasury that there wasn’t really any national security problem despite the fact that the Department of Defense had said there was.
“We are pursuing that avenue one more time,” Thompson said.

The steel industry had to go to court on dumping charges and Thompson sees at least as much difficulty in getting action on fasteners.
“We will either have to go the national security route, or try to use an even more difficult mechanism – dumping,” Thompson told FIN.
Showing dumping is “more difficult because you have to press charges against particular manufacturers and particular product lines,” he explained. “It is very difficult to establish in a product as varied as fasteners are.”

The ad hoc U.S. Fastener Manufacturing Group is still contemplating what they are going to do beyond pursuing the national defense route. © 1982/2009 Fastener Industry News.