Do US Steelmakers Really Need Trump’s Infrastructure Boost?
Reviving America’s infrastructure was one of President Donald Trump’s pre-election promises. Notably, infrastructure and steel (STLD) found mention in several of his pre- and post-election speeches. Trump’s election helped boost market sentiments, and steelmakers moved to higher price levels.
As noted in the previous article, Nucor (NUE) expects President Trump’s proposed trillion-dollar infrastructure investment plan to generate annual incremental demand of 5 million tons of steel over the next ten years. In this article, we’ll see what Trump’s proposed infrastructure investments would really mean for US steelmakers (X) (AKS) (MT).
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US steel prices
US steel prices have risen steeply since Trump’s election. Though Trump’s proposed infrastructure investments boosted steel prices, it would be a naïve to say that the rally in US steel prices has been entirely due to the “Trump effect.”
Last year, we saw a sharp rally in iron ore and coking coal prices prior to Trump’s election. Higher raw material prices provided support to international steel prices while US steel prices fell in 3Q16. As international steel prices rose following rising raw material prices, the differential between US and international prices narrowed. Narrowing spreads reduced the attractiveness of imported steel for US buyers.
Along with higher raw material prices and rising international steel prices, falling Chinese steel exports also helped US steel prices. A mix of factors helped US steelmakers raise their base selling prices. Trump’s election helped build momentum as other metals also rose due to the prospect of higher US demand. However, the steep increase in US steel prices wasn’t entirely in anticipation of Trump’s infrastructure plans.
Although US steel prices came under pressure earlier this year, they seem to be on the rise again.