Tariffs Boost US Steel Stocks' FY18 Earnings: Worries Ahead?
Zacks Investment Research | Mar 04, 2019 08:33PM ET
U.S. steel makers racked up strong earnings in 2018, courtesy of the Trump administration’s trade actions on imported steel. The 25% tariff on steel imports, which the U.S. administration levied in March 2018, provided a thrust to U.S. steel prices, as reflected by the significant run-up in benchmark hot-rolled coil (“HRC”) steel prices. The steel tariffs also provided more pricing power to American steel makers.
The tariffs injected a new lease of life into U.S. steel producers, who long struggled to cope with a tide of subsidized foreign imports. The punitive tariffs led to a decline in U.S. steel imports in 2018. The tariffs are also boosting production capacity of U.S. steel producers amid lower imports.
Improved capacity drove U.S. steel production in 2018. Per the World Steel Association ("WSA"), crude steel production increased 6.2% to 86.7 million tons (Mt) in the United States in 2018. U.S. steel shipments also went up 4.8% year over year in 2018, per data from the American Iron and Steel Institute (“AISI”), an association of North American steel makers.
American Steel Makers Forge Solid Earnings in 2018
Higher steel prices boosted profits of U.S. steel producers including United States Steel Corp. (NYSE:X) , Nucor Corp. (NYSE:NUE) , Steel Dynamics, Inc. (NASDAQ:STLD) and AK Steel Holding Corp. (NYSE:AKS) last year with a few of them posting record earnings for the full year.
Steel Dynamics, the first major American steel producer to report fourth-quarter results, logged record profit of $1,258.4 million or $5.35 per share in 2018, up around 55% from $812.7 million or $3.36 per share in 2017. Earnings rose on the back of higher prices and record steel shipments.
Nucor also delivered record-setting earnings in 2018. The company’s profits shot up nearly 80% year over year to $2.36 billion or $7.42 per share. The results were driven by higher sales prices and record shipments.
Moreover, U.S. Steel’s profits surged nearly three-fold year over year to $1,115 million or $6.25 per share in 2018. Higher steel prices contributed to the surge in profits.
Meanwhile, AK Steel churned out highest net income in a decade in 2018, buoyed by higher steel selling prices and shipments. It recorded profits of $186 million or 59 cents per share, up roughly 80% year over year.
Both Nucor and AK Steel currently carry a Zacks Rank #3 (Hold). Steel Dynamics carries a Zacks Rank #4 (Sell), while U.S. Steel has a Zacks Rank #5 (Strong Sell). You can see Zacks Investment Research
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