Key Takeaways
- ✅ HVAC shipments have declined for the fifth consecutive month in October 2025, falling 17.1% year-over-year with 1.547 million units shipped, dramatically reducing steel consumption in the construction sector.
- ✅ Tractor and combine shipments have fallen 9.8% year-to-date in 2025, with combined October shipments down 18.3% year-over-year, signaling weakened agricultural equipment demand and reduced high-strength steel requirements for machinery production.
- ✅ Section 232 steel tariffs (now at 50%) are compounding challenges for both HVAC and agricultural equipment manufacturers, with tariff-driven component costs increasing by over 40% for some critical parts, forcing industry-wide price increases and demand deferrals.
- ✅ HVAC and agricultural equipment manufacturers must navigate a period of elevated material costs, suppressed demand, and supply chain uncertainty.
Introduction
The steel industry stands at a critical juncture in 2025, facing unprecedented challenges from two of its largest downstream consumption sectors- heating, ventilation, air conditioning and refrigeration (HVAC) equipment manufacturing and agricultural machinery production. These two segments have historically represented significant drivers of steel demand, consuming vast quantities of specialty steel for structural components, fabricated parts, and finished equipment. However, recent data from industry bodies and manufacturers paint a troubling picture of sustained decline that threatens to destabilize the broader steel supply chain and manufacturing ecosystem.
In October 2025, the Air-Conditioning, Heating, and Refrigeration Institute (AHRI) reported that HVAC shipments reached just 1.547 million units- a staggering 7.0% decline from September and a shocking 17.1% drop compared to October 2024. More concerning is the trend duration: shipments have now declined on a year-over-year basis for five consecutive months. Simultaneously, the agricultural equipment sector presents an equally troubling narrative. According to the Association of Equipment Manufacturers (AEM), North American tractor and combine shipments totaled 20,843 units in October 2025- up 3.9% from September but down 18.3% compared to October 2024. Year-to-date shipments are down 9.8%, and the sector has experienced negative performance for 28 of the last 29 months.
These simultaneous declines represent far more than statistical curiosities. They signal a fundamental contraction in two critical manufacturing segments that collectively consume millions of tons of steel annually. For the steel industry, which has invested billions in capacity expansion under the protection of Section 232 tariffs, this demand destruction comes at precisely the wrong moment. Understanding the drivers of this decline, the structural factors perpetuating it, and its implications for steel consumption and manufacturing is essential for industry participants, policymakers, and stakeholders across the value chain.
The Steel Industry’s Role in HVAC Manufacturing: Market Fundamentals and Current Challenges
Steel serves as the foundational material for the HVAC equipment industry, comprising critical structural and functional components throughout the entire manufacturing process. From furnace casings and ductwork to condenser units and support structures, steel- particularly flat-rolled varieties- forms the backbone of virtually every heating and cooling system manufactured for residential, commercial, and industrial applications.
The relationship between steel consumption and HVAC production is direct and measurable. A typical residential central air conditioning system requires approximately 200 to 300 pounds of steel components, while commercial HVAC systems can contain significantly higher quantities, particularly in rooftop units and specialized configurations. The HVAC Linesets market alone- which depends on low-carbon steel tubes for refrigerant transport- was valued at approximately 9.16 billion dollars in 2023 and is projected to grow at a compound annual growth rate of 7.9% through 2030, demonstrating the category’s significance within broader HVAC manufacturing. These linesets are among the most steel-intensive components in modern HVAC systems, and their performance and reliability depend critically on steel quality and precision.
However, the current market environment has created a perfect storm for HVAC manufacturers, simultaneously compressing demand while inflating material costs. Multiple factors are converging to create this crisis. First, the shift to A2L refrigerants- specifically R-454B- has fundamentally altered HVAC system design, manufacturing processes, and overall cost structures. While environmentally beneficial, this transition has proven unexpectedly disruptive. R-454B is mildly flammable and requires enhanced safety systems, leak detection equipment, and manufacturing facilities reconfigured to handle the new refrigerant classification. These modifications have added 15 to 30 percent to system costs, a burden that has triggered substantial sticker shock among consumers and contractors.
Pricing data illustrates the severity of the challenge. In 2024, R-454B refrigerant was trading at approximately 17 to 20 dollars per pound, compared to just 5 to 7 dollars per pound for the now-phased-out R-410A- representing a 300 percent price increase since 2021. Honeywell implemented a 42 percent surcharge on all R-454B orders after February 15, 2025, plus an additional four dollars per pound increase as of April 9, 2025.
Simultaneously, raw material costs have surged due to Section 232 tariffs. The Trump administration doubled steel and aluminum tariffs from 25 percent to 50 percent on June 4, 2025, under the national security provisions of Section 232 of the Trade Expansion Act of 1962. For HVAC manufacturers relying on imported steel components or facing higher domestic steel prices due to tariff-induced scarcity, these policy measures created immediate and severe cost pressures. A 25 percent tariff on steel and aluminum components was already impacting pricing and procurement strategies; the jump to 50 percent in June effectively doubled the tariff burden. Industry analysis suggests that these tariffs alone are responsible for adding 50 billion dollars in annual costs to American manufacturing sectors- costs that cannot be fully absorbed by producers and must be passed downstream to consumers.
The housing market provides additional context for understanding the HVAC demand collapse. This disconnect between intent and action has profound implications for HVAC equipment replacement cycles. New construction, which historically provides steady demand for HVAC installations, has stagnated. Homebuilders made midyear production corrections in 2025, deliberately slowing construction to adjust to market conditions. Residential construction equipment and HVAC demand have contracted roughly 20 percent year-over-year, according to multiple industry surveys.
The broader macroeconomic environment further complicates matters. High mortgage rates continue to suppress home purchases and renovations, while elevated interest rates have made equipment financing expensive and less accessible. Consumers already facing unprecedented HVAC price increases due to R-454B transition costs and tariff-driven material expenses have responded rationally by deferring replacement purchases and investing instead in repairs and maintenance of existing systems. William Blair’s comprehensive 2025 HVAC Survey documented this behavioral shift explicitly, noting that “the mix has shifted to lower-end equipment,” with high-SEER systems down 20 percent and repair activity increasingly dominating purchasing patterns.
Weather patterns added yet another headwind. Cooling degree days- a measure of air conditioning demand- were down 4 percent nationally in 2025, with even sharper declines in the Southeast, historically the industry’s largest replacement market. This combination of factors- higher prices, reduced housing activity, consumer preference for repairs over replacements, and unfavorable weather- has created conditions where HVAC shipments have declined precipitously. The October 2025 figure of 1.547 million units represents the lowest monthly shipment level in recent history relative to seasonal norms, and industry analysts project that conditions will not improve materially until spring 2026 at the earliest.
Agricultural Equipment and Steel Consumption: Structural Headwinds and Market Dynamics
Steel forms the essential foundation of agricultural machinery production, with particularly significant concentrations in tractors and combine harvesters- the two segments showing the most pronounced weakness. Unlike consumer products where material substitution sometimes occurs, agricultural equipment depends fundamentally on steel for structural integrity, durability, and performance in demanding field conditions. Tractors utilize high-strength steel for chassis construction, drive components, and hydraulic systems. Combine harvesters employ galvanized and high-strength steels to withstand constant abrasion, moisture exposure, and the mechanical stresses of harvesting operations.
The global agricultural tractor market was valued at approximately 60.08 billion dollars in 2024 and is projected to grow to 88.95 billion dollars by 2030, according to market research compiled in mid-2025. This growth projection, however, reflects longer-term structural trends rather than current market conditions. In the immediate term, the agricultural equipment sector faces a perfect storm of negative factors that show no signs of abating.
The decline in agricultural equipment sales reflects falling commodity prices, which have devastated farmer incomes and severely constrained capital expenditure capacity. Corn and soybean prices have declined to multi-year lows, eroding farmer profitability and forcing agricultural producers to adopt survival strategies focused on minimizing expenditures rather than investing in equipment upgrades or capacity expansion. This dynamic has been particularly pronounced in the United States, where weather challenges in recent growing seasons, coupled with global oversupply in grain markets, have compressed farm revenues sharply.
The Association of Equipment Manufacturers reported that U.S. combine sales fell 26.8 percent in October 2025 compared to October 2024, continuing a devastating trend throughout the year. Looking at year-to-date performance, combines are down 38.4 percent compared to the same period in 2024- a collapse in demand unparalleled in recent history outside of financial crisis periods. Tractor sales, while slightly more resilient than combines, tell a similarly discouraging story. All tractor categories have experienced year-over-year declines, with tractors under 40 horsepower down 22 percent, the 40-100 horsepower segment down 10.9 percent, and tractors over 100 horsepower down 17.3 percent.
Multiple forces are compounding the weakness in agricultural equipment demand. Trade uncertainty stemming from evolving U.S. tariff policies has created profound anxiety among manufacturers, dealers, and farmers alike. While Section 232 tariffs on steel and aluminum were implemented to protect the domestic steel industry and encourage domestic production, their application to agricultural equipment manufacturing has created significant headwinds. John Deere, CNH Industrial, and AGCO- the industry’s largest manufacturers- have all issued guidance reflecting expected declines in 2025. CNH Industrial revised its 2025 sales outlook to anticipate an 18 to 20 percent year-over-year decline, while other manufacturers have implemented production cuts, reduced inventory, and streamlined operations.
Global trade tensions extend beyond Section 232 tariffs. The Association of Equipment Manufacturers noted in May 2025 that tariff uncertainty, combined with global trade concerns and the threat of additional tariffs on Chinese components, has fundamentally altered farmer and dealer psychology. Farmers are taking what AEM characterized as “a cautious approach to capital investments,” deferring non-essential purchases and focusing resources on immediate operational needs rather than equipment replacement or upgrade.
High interest rates compound the problem. Capital equipment financing, already burdened by elevated borrowing costs, has become increasingly expensive and less accessible. Farmers facing declining revenues have little incentive to finance new equipment at real interest rates (nominal rates minus inflation adjustments) exceeding 5 to 7 percent. This financing constraint, combined with falling commodity prices, creates a environment where equipment purchases are deferred indefinitely.
Raw material costs for agricultural equipment manufacturers have also escalated due to steel and aluminum tariffs. Combine harvesters and tractors require substantial quantities of specialty steel, including high-strength alloys designed to provide durability under demanding field conditions. The raw material cost increases flowing from Section 232 tariffs are estimated to add 4 to 8 percent to baseline equipment manufacturing costs, pressures that cannot be offset by declining demand or production economics.
The oversupply dynamic in used equipment markets further suppresses new equipment demand. As farmers defer purchases, equipment moves to auctions and used equipment markets, where prices for combines have actually shown resilience even as inventory has accumulated. This provides farmers with a more affordable alternative to purchasing new equipment, enabling further deferral of capital expenditure. The equipment rental market has also grown substantially, with more than 50 percent of equipment on job sites now rented rather than owned, reflecting both the high cost of new equipment and the desire of cash-constrained operators to avoid large capital commitments.
According to Agco’s CEO Eric Hansotia on recent earnings calls, “We are projecting 2025 to be the bottom of the trough” in agricultural equipment demand. Manufacturers are responding by cutting production, reducing dealer inventories, and managing costs aggressively. The focus for equipment makers has shifted from growth to preservation- minimizing losses while positioning for eventual recovery. Investment in innovation continues, but at reduced levels, with resources focused on products expected to thrive in eventual recovery scenarios rather than near-term market expansion.
Market Contraction Across Manufacturing: Interconnected Supply Chain Dynamics
The simultaneous weakness in HVAC and agricultural equipment sectors is occurring within a broader manufacturing contraction that has extended for eight consecutive months as of October 2025. The Institute for Supply Management’s October 2025 Manufacturing PMI registered 48.7 percent- below the 50 percent threshold that indicates economic contraction. This marks the eighth consecutive month of manufacturing contraction, though it follows a two-month expansion that preceded it.
Within this broader contraction, several sectors showed resilience while others collapsed. Primary metals registered growth in new orders, suggesting that some demand for raw steel exists. Fabricated metal products and transportation equipment also showed positive trends. However, 11 of 15 major manufacturing categories reported declining new orders in October, with particular weakness in machinery, electrical equipment, appliances and components, and chemical products sectors.
The New Orders Index, which is arguably the most forward-looking indicator of manufacturing activity, contracted for the second consecutive month in October at 49.4 percent. Manufacturing executives cited tariff costs and uncertainty as primary drivers of soft demand. According to ISM data, for every positive comment about new orders, there were 1.7 comments expressing concern about near-term demand driven primarily by tariff costs and policy uncertainty.
Export orders represent another area of significant weakness. New Export Orders Index contracted for the eighth consecutive month, registering 44.5 percent in October. This suggests that the tariff regime is not limited to domestic effects; global demand for American manufactured products is also softening, possibly due to retaliatory tariffs imposed by trading partners including the European Union and Canada, or due to broader global demand weakness related to macroeconomic challenges.
The inventory situation is particularly troubling. The Inventories Index registered 45.8 percent in October, down 1.9 percentage points from September, indicating contracting inventories. This suggests that manufacturers are managing cash and capital aggressively, reducing production and inventory levels in response to soft demand. Over time, when combined with weak new orders and production contraction, this pattern typically presages deeper recessions as companies move from managing inventory down to rightsizing operations to match anticipated lower long-term demand.
Within this context, the declines in HVAC and agricultural equipment represent particularly severe manifestations of broader manufacturing weakness. These sectors are typically among the first to contract during demand slowdowns, as businesses and farmers defer capital expenditure in response to economic uncertainty. However, the magnitude of the decline in these sectors appears to exceed what would be expected from normal cyclical weakness, suggesting that sector-specific factors are amplifying the downturns.
Cascading Cost Pressures: Material Inflation and Supply Chain Reconfiguration
The steel industry’s own supply chain challenges are further complicating the picture for downstream manufacturers. Copper, aluminum, and specialty steel – all critical inputs for HVAC and agricultural equipment – have experienced sustained cost inflation driven by tariff policy, geopolitical tensions, and raw material market dynamics.
Copper prices remain volatile and elevated due to global supply constraints and strong demand from renewable energy infrastructure projects and electric vehicle manufacturing. Copper tubing and coils – essential HVAC components – face both volume constraints and price inflation. Aluminum, subject to the same 50 percent Section 232 tariff as steel, is experiencing particularly severe supply constraints in certain specialty forms required for HVAC applications.
High-strength steel alloys, essential for agricultural equipment applications, face similar pressures. The tariff regime has incentivized investment in domestic capacity for commodity steel products, but specialty alloys and certain fabricated products continue to rely on imports from Japan, Germany, and other developed economies, all of which are subject to the 50 percent tariff.
Supply chain reconfiguration is occurring in response to these pressures. Some HVAC manufacturers are exploring reshoring opportunities, attempting to establish or expand domestic component production to reduce tariff exposure. Agricultural equipment manufacturers are similarly exploring options for domestic component sourcing. However, these transitions require capital investment, workforce development, and time – often 18 to 36 months for significant production capacity to come online – precisely when manufacturers are reducing costs and managing cash aggressively.
Logistics and transportation costs have also increased. Cross-border trucking delays from Canada have risen by approximately 15 percent in response to tariff-related supply chain adjustments and increased border scrutiny. This is affecting manufacturers in HVAC, agricultural equipment, and related sectors that rely on integrated North American supply chains.
Consumer Impact and Market Affordability
Ultimately, the tariff regime and manufacturing dynamics have substantial consumer impact. HVAC price increases of 15 to 30 percent represent genuine hardship for homeowners facing system replacement needs, particularly in lower-income households. Agricultural equipment price increases compound farmer financial challenges, making debt-financed equipment purchases increasingly untenable and forcing operational compromises.
The broader question for policymakers is whether the long-term benefits of tariff protection – a revitalized, secure, and competitive domestic steel industry – justify the near-term costs to consumers and downstream industries. This question is inherently political as well as economic, reflecting value judgments about tradeoffs between short-term pain and long-term gain, between national security and economic efficiency, and between protection of upstream industries versus fostering competitiveness throughout the economy.
Conclusion: Navigating Uncertainty and Anticipating Recovery
The steel industry and its downstream customers in HVAC and agricultural equipment manufacturing face a period of unprecedented challenge and opportunity in 2025 and beyond. The simultaneous contraction in two critical consumption sectors – HVAC equipment and agricultural machinery – represents a significant demand shock that threatens to undermine long-term tariff protection objectives even as those tariffs drive material cost inflation and demand suppression.
The path forward depends on multiple interconnected factors: stabilization and eventual recovery in housing and agricultural commodity markets, moderation or strategic adjustment of tariff policy, supply chain reconfiguration and resilience, and consumer willingness to absorb higher equipment costs as part of the transition to a more domestic-oriented manufacturing base.
For industry participants, the immediate focus should be on navigating the transition period with minimum damage – managing cash, reducing costs aggressively, protecting market share through strategic pricing, and investing in capabilities that will be valuable in recovery scenarios. For policymakers, the challenge is balancing national security and industrial policy objectives against real-world economic costs, and remaining willing to adjust policy if evidence suggests current approaches are counterproductive.
The data presented in this article suggests that the worst of the demand destruction may be concentrated in 2025, with potential stabilization and gradual recovery beginning in 2026. However, this forecast is contingent on policy stability, normalization of key input costs, and moderation of extreme demand pressures. Should any of these conditions deteriorate further, the timeline for recovery could extend substantially, and the long-term viability of tariff protection as a policy instrument could face serious questions.
The steel industry, HVAC manufacturers, and agricultural equipment producers share common interest in seeing demand recover and supply chains stabilize. The challenge is managing the near-term transition in a way that ultimately builds a more competitive and resilient domestic manufacturing base, rather than permanently damaging demand for domestic production or shifting it offshore.
SOURCES
AHRI Shipment Report Breakdown for April 2025 – HARDI
https://hardinet.org/news/market-intelligence/ahri-shipment-report-april-2025
AHRI Releases March 2025 U.S. Heating and Cooling Equipment Shipment Data – AHRI
https://www.ahrinet.org/docs/default-source/statistics/monthly-shipments/2025/march-2025-us-heating-cooling-shipments.pdf
AHRI Releases July 2025 U.S. Heating and Cooling Equipment Shipment Data
https://www.ahrinet.org/statistics/monthly-shipments/july-2025
AHRI Monthly Shipments Reports
https://www.ahrinet.org/statistics/monthly-shipments
United States: June 2025 Heating and Cooling Equipment Shipment – IIFIIR
https://iifiir.org/en/news/united-states-june-2025-heating-and-cooling-equipment-shipment
Heat Pump, A/C Shipments Continue Sharp Dropoff | ACHR News
https://www.achrnews.com/articles/155972-heat-pump-ac-shipments-continue-sharp-drop
Agricultural Equipment and Market Trends
- Association of Equipment Manufacturers (AEM) Tractor and Combine Reports
https://www.aem.org/news/aem-releases-tractor-and-combine-report-october-2025 - How the Agricultural Machinery Industry Works – Umbrex
https://umbrex.com/guides/the-agricultural-machinery-industry/ - US Sales of Ag Tractors & Combines Decline in February 2025 – Agriculture of America
https://www.agricultureofamerica.com/articles/ag-tractors-combines-decline-feb-2025 - Tractor Market and Price Trends: A Comprehensive 2025-2030 Outlook – FramTractor
https://framtractor.com/market-price-trends-comprehensive-2025-2030
Steel Tariffs, Industry Outlook, and Market Data
- Fact Sheet: President Donald J. Trump Restores Section 232 Tariffs – WhiteHouse.gov
https://www.whitehouse.gov/briefing-room/statements-releases/2025/02/11/fact-sheet-president-donald-j-trump-restores-section-232-tariffs/ - June 2025: 50% US Tariffs Steel and Aluminum Impact – Boston Consulting Group
https://www.bcg.com/publications/2025/us-tariffs-steel-aluminum-impact - Section 232 Steel Tariffs Explained: Everything You Need to Know – Indeavor
https://www.indeavor.com/blog/2025-steel-tariffs-explained - Tariffs Trip Up Ag, Construction Industries – AEM
https://www.aem.org/news/sentiment-sinks-as-tariffs-trip-up-ag-construction-industries - The Ultimate Guide for HVAC Manufacturers in 2025 (KGG Research)
https://www.kggconsulting.com/blog/the-ultimate-guide-for-hvac-manufacturers-2025 - Competitive Enterprise for Prosperous America: Section 232 Steel Tariffs Economics Report
https://prosperousamerica.org/research/section-232-steel-tariffs-economics-report-nov-2025
Additional Market Analysis and News
Why Use Steel in Agricultural Heavy Machinery – National Material
https://www.nationalmaterial.com/why-use-steel-in-agricultural-heavy-machinery/
Commercial HVAC Market Poised for $136 Billion Boom Amid Change
https://www.achrnews.com/articles/155795-commercial-hvac-market-poised-for-136-billion-boom
HVAC Industry Trends and Outlook for 2025 – Workyard
https://www.workyard.com/resources/hvac-industry-trends-2025
Supply Chain Issues Reshape the HVAC/R Industry 2025 – Nextech
https://www.nextechna.com/resources/supply-chain-issues-hvacr-industry-2025
Steel Industry Trends 2025: Innovations, Sustainability & Market Shifts – FedSteel
https://www.fedsteel.com/blog/steel-industry-trends-2025
How Steel Supports the Agriculture Industry
https://www.fedsteel.com/blog/how-steel-supports-the-agriculture-industry/
Disclaimer
The content provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. Readers should seek consultation with qualified professionals before making any financial, investment, or legal decisions. We disclaim any liability for losses, damages, or adverse outcomes resulting from decisions made based on the information presented herein.
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