Why the Department of Commerce ruling is positive for US Steel
DOC ruling is positive for U.S. Steel Corp.
In response to complaints by domestic steelmakers, the U.S. Department of Commerce (or DOC) ruled in favor of U.S. steelmakers and imposed anti-dumping duties on imports of tubular goods from nine nations including South Korea. The ruling holds more importance because in the preliminary inquiry in February, it had rejected the plea against South Korea, which is the major exporter in this segment.
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Why volatility increased in U.S. Steel Corp (X)
The ruling by U.S. DOC came on July 11. Within minutes the stock price jumped by 5% to reach an intraday high of $28. The stocks of other steelmakers like ArcelorMittal (MT), Nucor Corporation (NUE), and Reliance Steel & Aluminum (RS) also reacted positively to this announcement. As a result, holdings of the SPDR S&P Metals and Mining ETF (XME) also gained. This isn’t surprising because cheap imported steel remains a key threat to U.S. steel companies.
Why it still isn’t jubilation time for U.S. Steel Corp. investors
While the U.S. DOC has imposed anti-dumping duties on tubular steel products, there are a couple of things investors should be aware of:
- Ratification by the International Trade Commission (or ITC) – While the U.S. DOC has imposed the duties, the imposition of these duties is still subject to the final ruling of the ITC. The ITC can disapprove of the findings of the U.S. DOC, which will be a big blow to the investors in U.S. Steel Corp.
- Imposition of lesser duties on South Korea – South Korean companies account for almost half of Oil Country Tubular Goods (or OCTG) imports in the U.S. The imports have been growing ever since the U.S. imposed a duty on imports of OCTG from China in 2009.You can see this in the previous chart. While the duties imposed are as high as 118% for Thailand, which actually has the lowest share in import of such goods, it’s between 10%–16% for South Korean companies. The industry argues that this should have been higher to make the price of South Korean steel level with the domestic prices.