Steel Tariffs to Make Water Infrastructure Projects Cost More

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By Amena H. Saiyid

Repairing water and wastewater plants and their collection systems using steel and aluminum will become more expensive once tariffs kick in for imports of these raw materials.

The Trump administration announced May 31 that a 25 percent tariff on steel and a 10 percent tariff on aluminum imported from the European Union, Canada, and Mexico will take effect at midnight, barring any last-minute breakthroughs in negotiations. Steel from those countries accounts for 40 percent of U.S. imports, Bloomberg News reported.

Since the Commerce Department issued its justification to impose tariffs in January, prices for high rolled steel have escalated 33 percent to $888 per short ton, Andrew Cosgrove, Bloomberg Intelligence senior industry analyst for metals and mining, told Bloomberg Environment. A short ton is 2,000 pounds.

The tariffs on imported steel will drive up demand for domestically produced steel, affecting every industry that uses this metal alloy, he said.

Moreover, Cosgrove said the prices will remain above levels seen in the past four years because he expects the tariff negotiations ultimately will result in quotas for the imports.

The EPA estimated that drinking water utilities will need $472.6 billion in infrastructure upgrades in the next two decades. The agency’s 2012 estimate of wastewater and stormwater needs for the nation totaled $271 billion.

No Dodging Bullet

Initially, the municipal wastewater and water utility sector thought they would dodge the bullet if they used federally subsidized loans to build and repair their plants and collection systems.

That’s because Congress mandated that cities and towns use U.S.-manufactured steel to replace aging parts of water and wastewater plants and collection systems if they have low-interest loans under a revolving loan fund program. These funding mechanisms can be used for drinking water, clean water, or projects initiated under the Water Infrastructure Finance Innovation Act.

But the tariffs will drive up the prices of steel and aluminum prices across-the-board, Cosgrove said.

If that’s the case, then drinking water utilities would be negatively affected, just like any other steel consumer, Dan Hartnett, the Association of Metropolitan Water Agencies’ chief advocacy officer for legislative and regulatory affairs, told Bloomberg Environment. The association represents drinking water utilities.

“Obviously, this would only add to communities’ challenge of improving the nation’s water infrastructure in a cost-effective and affordable manner,” Hartnett said.

Unless of course, cities already have projects underway, as does Woods Cross City, Utah.

“I cannot say if the tariffs have impacted our water system,” Scott Anderson, the city’s public works director, told Bloomberg Environment in an email. “What steel is being used in both a water project and a new public works building was under contract prior to when tariffs were imposed.”

Anderson added, however, that “I know steel prices are moving upward, whether the tariffs or economy is to blame I am not sure.”

For certain federally funded projects, the Hampton Roads Sanitation District goes through an analysis to verify that iron and steel is produced domestically, but that doesn’t include tariffs.

“We are seeing increases in project costs, but it is primarily due to rising labor costs for skilled trades,” Leila Rice, spokeswoman for the utility, told Bloomberg Environment.

New Contract Talks

The continual uncertainty and fluctuating list of countries that are “on or off” the tariff list have created significant cost impacts for some U.S. pollution control manufacturers, Vanessa Leiby, executive director of the nonprofit Leesburg, Va.-based Water & Wastewater Equipment Manufacturers Inc., told Bloomberg Environment.

In an industry where lead times between project bids and product deliveries can be months or even years, Leiby said some manufacturers are finding it difficult to bid projects because suppliers will guarantee prices for only 24 hours. In some cases, prices have increased upwards of 40 percent between the time a contract is signed and the raw materials need to be purchased. Manufacturers can’t absorb that significant price differential and stay viable, she said.

The not-for-profit Water Environment Federation, which represents water utility managers, operators, scientists, manufacturers, and engineers, said it couldn’t comment as it’s still studying the tariff’s varying impact on its various members.

“In general, the uncertainty regarding trade policy is making planning and budgeting more difficult for many segments of the water sector,” Travis Loop, the federation’s spokesman, told Bloomberg Environment.

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