Poor Vegetable Crop Dents Demand for Tin Cans -- Update
By Bob Tita
U.S. steelmakers, already stung from tariff-related business
moves that have backfired, are facing an unexpected new woe: a bad
United States Steel Corp. and ArcelorMittal SA ramped up
production and improved the quality of the tin-coated steel sheet
they make for food cans, expecting domestic demand to increase
after foreign metal became more expensive following the 25% duty
the U.S. applied to those imports. But imports of steel for cans
have hardly dropped since the tariff was implemented in March
Now, falling demand for steel cans is a fresh ding to producers.
The wettest 12 months on record have wreaked havoc across the Farm
Belt and hurt this year's crop of peas, beans and other vegetables
packed in steel cans. Halfway through the packing season, canned
vegetable volumes are running 10% below last year's level. At that
pace, about one billion fewer cans will be needed this year,
leaving can makers with an excess of steel sheet.
"There is an inventory glut building," said James Peterson,
chief executive of Ball Metalpack in Colorado, a partially owned
unit of aluminum-can giant Ball Corp. that accounts for nearly
one-fifth of the steel-can market.
As a result, U.S. steel mills are dialing back production of
steel for cans, undermining recent investments to improve the
quality of that product. Cutting production is also a setback for
their efforts to take market share from foreign producers. Last
year, nearly half of the domestic demand for 1.7 million tons of
tin-coated steel sheet, known in the industry as tinplate, came
from foreign producers, up from about one-third in 2013.
U.S. Steel plans to idle a tinplate mill in East Chicago, Ind.,
by the middle of November, furloughing about 150 workers and
reassigning about 150 more. ArcelorMittal said it would lay off 100
workers at its Weirton, W.Va., mill. U.S. Steel and ArcelorMittal
account for most of the tinplate produced in the U.S. for cans.
Demand for tinplate rose 1.6% during the first half of the year
from the same period last year. Imports rose 2.5% as can makers
stepped up purchases in anticipation of a bigger vegetable harvest.
But production of cans for vegetables dropped 2.8% in that same
period, said the Can Manufacturers Institute in Washington,
Food companies stock enough canned vegetables to keep their
products on store shelves despite this year's weak harvest, Mr.
Peterson said. There will likely be fewer promotions though in the
coming months if supplies are tight. Can manufacturers will be hurt
by the lost revenue while they are also paying more for both
domestic can sheet and imports.
After the Trump administration last year implemented the 25%
tariff on foreign metal, domestic producers of steel for cans
raised their prices to match what imports would cost including the
tariff fee. U.S. Steel and ArcelorMittal used the proceeds to
upgrade production lines, hoping to win back customers that were
buying more imports. U.S. Steel has committed about $150 million to
its tin equipment; ArcelorMittal is spending about $20 million.
Those investments are being undermined by the Trump
administration's May exemption for Canada and Mexico from the 25%
tariff. Duty-free tinplate from Canada now accounts for almost
one-third of imports of that product into the U.S. That is likely
to pressure domestic companies to offer lower prices to can makers
in supply contract negotiations this fall, said market forecaster
Harbor Intelligence LLC.
Can manufacturers say that while the quality and reliability
from domestic mills have improved, they will continue to buy
tinplate for their cans from abroad as well to guarantee enough
"The domestic mills' price would need to be below the tariff
prices to earn their way back," said Rick Huether, chief executive
of Independent Can Co. in Maryland.
Write to Bob Tita at email@example.com
(END) Dow Jones Newswires
September 09, 2019 17:18 ET (21:18 GMT)
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