ArcelorMittal (MT) isn’t a stranger to the crisis facing the European steel industry. It gets ~50% of its revenues from Europe. It’s leveraged to any uptick or downtick in the European steel industry. Steel prices in Europe recovered, but not as much as the sharp rise in US steel prices. Trade cases helped US steel companies like AK Steel (AKS) and Nucor (NUE) hike their base selling prices several times this year.
What would Brexit mean?
Will Brexit have a negative impact on steel prices in Europe? Brexit might not have a big impact on European steel prices at least in the near term. More than Brexit, it’s the negative impact from rising steel imports from China that haunts the European steel industry.
In May, ~14.5 million metric tons of steel was produced in the EU (European Union). That was a YoY (year-over-year) decline of 5.5%. Notably, the EU saw the biggest decline in steel production in May—compared to other major steel-producing countries. In the first five months of 2016, the EU’s steel production fell 6.4%—compared to the same period last year. In the EU, the United Kingdom has seen the biggest drop in steel production with a 37.5% YoY production decline. This could be attributed to the ongoing Tata Steel crisis.
While the US has taken some decisive steps against steel imports, Europe (HEDJ) has been slow in taking action against Chinese steel imports. In the next part of the series, we’ll explore if Brexit could shake the EU into taking action against Chinese steel imports.
Investors who want to avoid the hassles of picking individual stocks can also consider the SPDR S&P Metals and Mining ETF (XME). Currently, XME has invested more than half of its holdings in US-based steel companies. Commercial Metals Company (CMC) forms 4.1% of XME’s portfolio.