Steel Stocks Slide As Trump Softens Tariff Stance Amid Criticism
Zacks Investment Research | Mar 09, 2018 04:31AM ET
As widely expected, President Donald Trump signed orders imposing steep tariffs on steel and aluminum imports from certain countries yesterday, defying a wave of criticism and threats of counter-measures from major foreign trade partners.
The President’s move is aimed at protecting the domestic steel and aluminum industries which had long been reeling under the onslaught of cheap imports and has suffered significant reduction in production and employment.
In line with last week’s announcement, the White House has pushed ahead with a 25% tariff on steel imports and 10% tariff on aluminum imports. The tariffs, which President Trump believes are necessary to protect the national security, will go into effect in 15 days.
The tariffs are the result of the U.S. Department of Commerce’s investigations, which were carried out under Section 232 of the Trade Expansion Act of 1962, to determine whether the imports pose a threat to national security. The Trump administration ordered the investigation last year.
Trump Exempts Canada & Mexico
President Trump excluded Canada and Mexico — two major sources of steel imports to the United States — from the tariff orders that he signed in presence of steel and aluminum workers. Moreover, there will be provisions for other countries to apply for exemptions should their imports do not hurt the U.S. economy.
The President noted that Canada and Mexico represent “a special case” and will continue talks with them to address concerns. The exemption of these nations marks a significant concession from the President’s initial plan for broad-based tariffs on steel and aluminum. The exclusions of these countries are dependent on the outcome of the North American Free Trade Agreement (NAFTA) renegotiation talks that are underway.
Canada is the largest steel exporter to the United States, accounting for roughly 16% of total U.S. steel imports in 2017, per the U.S. Census Bureau data. Mexico is the fourth-largest exporter of the metal with around 9% market share.
The markets cheered the move with three major U.S. stock indexes closing higher yesterday on the news of exemptions that somewhat eased concerns of a fierce trade war.
Steel Stocks Retreat
Steel stocks rallied following the tariff announcement last week on expectations of a broad-based trade action. However, the Trump tariff order sent stocks of major U.S. steel makers tumbling yesterday.
Shares of U.S. Steel Corp. (NYSE:X) , Nucor Corp. (NYSE:NUE) , AK Steel Holding Corp. (NYSE:AKS) , Steel Dynamics, Inc. (NASDAQ:STLD) and Commercial Metals Company (NYSE:CMC) tanked roughly 2.9%, 2.7%, 4%, 2.8% and 3.6%, respectively, yesterday.
The price reaction appears to have been triggered by the concessions made by the President in the tariff order by excluding two main sources of U.S. imports while leaving room for other nations to negotiate exclusions from the tariffs.
Get The News You Want
Nevertheless, the tariffs would give American steel makers more pricing power and also help to level the playing field. The tariffs will lead to lower imports into the United States, which would in turn boost demand for American steel.
On prospects of higher steel demand as a result of the latest U.S. punitive trade measures, U.S. Steel said recently that it will restart one of its Granite City Works blast furnaces and steelmaking facilities. U.S. Steel expects to call back around 500 employees starting this month. Both the blast furnaces of Granite City Works and its steelmaking facilities were idled in December 2015 in response to challenging market conditions, including unfairly traded imports.
Moreover, the tariffs are expected to boost domestic steel production capacity. The U.S. Department of Commerce earlier said that the trade actions are aimed at increasing domestic steel production to roughly 80% operating rate from its present 73% of capacity.
Both U.S. Steel and Steel Dynamics sport a Zacks Rank #1 (Strong Buy). While Nucor carries a Zacks Rank #2 (Buy), both AK Steel and Commercial Metals currently have a Zacks Rank #3 (Hold). You can see Zacks Investment Research
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