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Market Update

The Material Report #002

Tariffs Are Working Great. Just Not for You.

64% of large manufacturers say the 50% Section 232 tariffs have been good for business. If you're running a shop with fewer than 200 employees, you probably read that and laughed.

A Practical Machinist survey of 752 metalworking professionals confirms what most small shop owners already feel in their margins: 44% of shops under 11 employees and 43% of shops under 200 reported negative tariff impacts. Large companies with domestic supply agreements, bulk purchasing leverage, and the cash to stockpile material? They're thriving. Their net sentiment on tariffs is +41%.

The gap makes sense when you think about who's actually paying the tariff premium. A company like Caterpillar has long-term mill contracts that insulate them from spot market swings. A 30-person job shop in SoCal is buying from one or two service centers at whatever the price is that week. When your supplier's cost goes up 50%, yours does too. The large shop across town with a procurement department and three backup suppliers barely notices.

Here's the part that should make you angry though: 36% of shops that got hurt by tariffs made zero strategic changes in response. Over a third of the industry is just eating it. And while I get why (you're running lean, you're focused on making parts, procurement strategy isn't why you got into this business), the shops that figure out material cost management are going to have a serious competitive advantage over the ones that don't.

Prices Since Last Issue

Not much has moved in two weeks except steel, which is creeping up. US HRC pushed past $975/ton and Nucor is testing $1,020 at some mills. SteelBenchmarker hit $1,023 on February 9. Lead times are stretching to about 6.4 weeks. With imports down 38% year-over-year and the tariff making foreign steel uncompetitive, domestic mills have the pricing power and they know it.

Aluminum is flat around $3,045-3,100/tonne. Copper pulled back to $5.80-5.90/lb from its $6.58 high in late January but the 50% tariff on semi-finished copper products is still adding cost on bar, tube, and sheet.

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What the Smart Shops Are Doing

1. Material escalation clauses. If you're still eating price swings between quote and PO, stop. Some shops use a percentage threshold, like a 10% swing clause where the customer absorbs the difference if material costs jump more than 10%. Others just add a line saying the invoice reflects actual material cost at time of purchase. Both approaches work because everyone in the supply chain already knows prices move. And honestly, the alternative is you baking 20% padding into every quote "just in case," which costs the customer more anyway.

The move: Pick an approach and add it to your standard quote template this week. Don't wait until next month.

2. Actually shopping your suppliers. The Practical Machinist survey showed 28% of shops diversified their supplier base in response to tariffs. That means 72% didn't. If you're buying from one service center out of loyalty or habit, you're probably overpaying. The spread between suppliers right now is wider than most people realize, especially on less common alloys and non-standard cuts. Experienced buyers are getting 15-30% below published list prices. You can't negotiate what you can't see, which is exactly the problem we're building Material Price Book to solve.

The move: On your next material buy, get quotes from at least two suppliers you don't normally use. Just to see where you stand.

3. Stockpiling with discipline. Your competitors are buying ahead of spring price hikes. January's ISM data showed a spike in new orders (57.1%) and raw material inventories, and some of that is shops getting ahead of expected price increases. If you run the same 6061 or 1018 every month, buying 2-3 months ahead on a dip makes sense. One shop owner spending an extra $60k/year on 6061 at 2,500 lbs/month has looked at every option and concluded there's a price floor he can't get below. For him, buying ahead is rational. But don't speculate on alloys you might not need. Tying up cash in inventory that sits is its own kind of risk.

The move: Look at your last 6 months of material purchases. If 80% is the same 2-3 materials, you have a stockpiling opportunity.

What to Watch in March

The Supreme Court just struck down Trump's IEEPA-based tariffs (6-3). The 50% Section 232 tariffs on steel, aluminum, and copper are unaffected. Separately, the Financial Times reported (Feb 13) that the White House is reviewing Section 232 tariffs on downstream products like machinery parts and imported components. The administration's top trade official confirmed the core 50% rate isn't going anywhere but said they're looking at easing compliance on those downstream goods. We'll cover the full fallout in Issue #003.

February ISM PMI drops March 2. January's 52.6 was the first expansion in a year, but ISM flagged that some buying was tariff-driven pull-forward. If February holds above 50, the expansion has legs.

Steel above $1,000/ton is looking likely as Nucor keeps pushing incremental increases and seasonal construction demand picks up through Q1.

Commerce is reviewing refined copper tariffs with an update expected by June 30. If phased tariffs (15% in 2027, 30% in 2028) go through, copper gets a lot more expensive. If you work with copper, pay attention.

Eric Na writes The Material Report, a bi-weekly newsletter on metal pricing trends for machinists and shop owners.

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