'We're standing up to our foreign competition': Steel CEO on Trump tariffs

Key Points
  • Timken Steel CEO Tim Timken says that without domestic steel, the United States would be reliant on foreign sources, which could threaten national security.
  • President Trump's tariffs are "a good thing for the steel industry and for our country because we're standing up to our foreign competition," Timken says.
  • The steel industry would be able to better withstand downturns if global trade was on a more level playing field, Timken says.
Tim Timken, president and chief executive officer of TimkenSteel, listens during a meeting with U.S. President Donald Trump and steel and aluminum executives in Washington, D.C.
Bloomberg | Getty Images

After more than a century in business, Timken Steel was in a state of crisis. The energy and commodity markets tumbled in 2015 and 2016, taking Timken Steel and other producers down with them.

During that time, Timken Steel was running at less than 50 percent capacity. No longer profitable, the company trimmed 12 percent of its workforce. Employees, who earned about $72,000 per year on average, were suddenly out of work.

A brand new $50 million "treat-heat" facility — which hardens the steel for use a mile below a gulf oil rig and 200 miles above the Earth's surface within the International Space Center — was ground to a halt. The company was barely holding on.

To make matters more tenuous, global producers, subsidized by their own governments, were flooding the market, creating an unprecedented amount of oversupply. This squeezed steel producers even more because they needed to lower their prices.

"I'm in the steel industry, the cycle is a reality," CEO Tim Timken said in an interview with CNBC on Monday. "The coordinated downturn in all of our end markets stayed down a lot longer than normal. That had a significant impact."

That's when Timken started pleading with officials in Washington to do something to help. Timken, a fifth-generation leader of his namesake company, said the steel industry would be able to better withstand downturns if global trade were on a more level playing field.

He says, globally, there's 700 million metric tons of oversupply, 425 million tons of which are from China alone. Demand in the U.S. is only 94 million tons, he said.

To combat the overcapacity, Timken Steel turned to automation. The company has improved man-hours-per-ship-tonnage by 16 percent over the last seven years. In other words, technology has helped Timken Steel become more efficient, meaning it needs fewer employees to produce and sell the same amount of steel.

"If we hadn't made these types of investments [in technology], it's this that kept us alive and allowed us not to bleed to death," Timken said.

Timken Steel had 3,000 employees in 2014, which declined to 2,500 by the end of 2016. Today, the company has 2,800 employees and is hiring more, amid a better environment for the company's end customers.

Around around 7 p.m. Wednesday, Timken received a phone call from the White House, asking him and six of his peers to be in Washington the next morning. They all showed up for a meeting with President Donald Trump, originally slated to last half an hour.

Trump made it clear that it was important to look after the steel industry, Timken said. If the U.S. were to give up on steel, the country would be wholly dependent on foreign sources, which could threaten national security, according to Timken.

Trump announced on Thursday that he would be imposing 25 percent tariffs on steel imports and 10 percent on imported aluminum to protect the U.S. producers.

"The first step is to stop the bleeding and the second step is to invest back into the community," Timken said, describing Trump's thought process ahead of announcing the tariffs.

It's unclear what the ramifications on steel producers will be. Timken declined to say whether he would hire or invest more if the tariffs were enacted. He's waiting for the full details to be disclosed.

However, he said he's awaiting a call to come back to D.C. this week for the signing ceremony.

Not every industry is as excited about the tariffs. Goldman Sachs highlighted the pressure on margins for customers of steel producers in its weekly note to investors on Friday.

"Some companies may be able to pass through higher input costs to customers while other firms will experience a margin squeeze leading to negative EPS revisions," Goldman Sachs said.

Steel is the primary material used by Ford and General Motors, and based on 2017 production mix, if the proposed tariff translates into similar magnitude of increase in steel prices, it would hit each company by roughly $1 billion, the note said.

Timken Steel counts both automakers as "key customers," providing components of their engines and power trains. Other notable Timken Steel automobile clients include Honda, Nissan, Toyota and Fiat Chrysler, according to a recent investor presentation.

Timken said he has a commercial team already looking into various markets to recognize which customers may require more steel from them and any new customers they may be able to sign, in light of the tariffs.

"We'll see a lot of activity quickly," Timken said. "People trying to shore up and make sure they have supply for the year and then let it filter out after that."

Overall, Timken believes the tariffs are a beneficial move by Trump. He said it sends a message to countries like China and South Korea that he believes have been unfair trade participants, creating the overcapacity problem.

"This is a good thing for the steel industry and for our country because we're standing up to our foreign competition and essentially saying enough is enough," he said. The tariffs are a "very loud statement that we are not willing to do that anymore."