Section 232, tariffs, and the working-capital math for steel-intensive borrowers.
We examine how customers across automotive and building products are restructuring inventory cycles in response to extended tariff regimes — and why their borrowing-base facilities now look different than they did a year ago.
Section 232 of the Trade Expansion Act of 1962 gives the Executive Branch the authority to impose tariffs on imported goods deemed to threaten U.S. national security. Steel and aluminum imports have been subject to Section 232 tariffs continuously since 2018 — first at 25 and 10 percent respectively, with various country-level modifications since.
For most of the post-2018 period, our steel-intensive borrowers absorbed the tariff regime through a combination of customer pass-throughs, supplier substitution, and modest inventory adjustments. The world looked materially different one year ago, when the administration's tariff posture broadened to include downstream steel and aluminum products and several finished goods categories.
The relevant question for our borrowers, and therefore for Steelbanc as their working capital lender, is not whether the tariff regime is good or bad — that is well outside our domain — but how it changes the optimal level of working capital they need to carry, and over what cycle.
What we are seeing across the book
Three working-capital dynamics show up across our steel-intensive borrowers, with regularity:
Higher absolute inventory. Borrowers are carrying, on average, 1.4 weeks more finished-goods and raw-materials inventory than they were a year ago. The increase is concentrated in raw steel and aluminum stock, particularly for grades subject to longer international supply lead times.
Earlier purchasing in anticipated cycles. Where customers used to place steel purchase orders 8 to 12 weeks ahead of consumption, several have moved to 16 to 20 weeks. This pushes peak working capital draw earlier in each cycle, which has implications for revolver sizing and seasonal covenant calculations.
More aggressive customer pass-through clauses. The newer master purchase agreements we see in collateral reviews include automatic tariff pass-through provisions in a way they did not in 2022 or 2023. This shifts working capital pressure away from our borrower and onto their customer, but it does so unevenly — and we evaluate the durability of that pass-through carefully in our credit analysis.
The implication for borrowing-base sizing
On net, our steel-intensive borrowers need larger working capital revolvers than they did a year ago — meaningfully so in a few cases. We have upsized several borrowing bases in the past nine months specifically to accommodate higher inventory advance lines. We have also tightened our expectations around inventory turn covenants, since a higher absolute inventory level should still turn in line with sales over the year.
For borrowers contemplating a refinancing or new facility this year, the practical message is that the right answer on revolver sizing in 2026 is probably 15 to 25 percent larger than it would have been in 2024 — and the right eligibility schedule is more restrictive than what was quoted then. Worth a conversation.
Views expressed are those of the author and not necessarily those of Steelbanc Holdings, Inc. or its affiliates. Not legal or trade-policy advice.