US steel industry’s fortunes

Steel stocks like U.S. Steel (X), ArcelorMittal (MT), and AK Steel (AKS) rallied handsomely in the first half of 2016. While 1H16 went well for steelmakers (STLD), we saw selling pressure in 3Q16 as the impact of trade cases started to wane. After a steep rally in the first half of the year, flat US steel prices came under severe pressure in 3Q16.

How the US Steel Industry’s Fortunes Zigzagged in 2016

Steel rally dissipated in 3Q16

In 3Q16, spot flat steel prices fell by ~$150 per short ton and erased more than half of the 1H16 gains. As the spread between US and international steel prices rose to record highs, steel buyers actively scouted for steel from international markets. As a result, we saw a rise in flat rolled steel imports, negatively affecting US steel prices. Steel stocks also followed steel prices lower.

Trump’s election was a game changer

Steel market sentiments started to improve somewhat in November amid a steady increase in global steel prices. Just when market sentiment was turning negative towards the steel sector, Trump’s election turned out to be a game changer. Trump’s views on most economic issues resonate with US steel companies. Trump appears to favor a more aggressive trade policy, regularly citing job losses as a result of imports from other countries, especially China.

US steel producers frequently list “unfairly traded steel products” as the biggest challenge for the US steel industry. Notably, Nucor’s (NUE) former CEO, Dan DiMicco, is among Trump’s economic advisors.

Trump’s election boosted steelmakers. But, can Trump’s economic policies lead to a sustainable recovery in the steel space? We’ll explore this in the coming articles. But before that, in the next article, we’ll see how 2017 could be different compared to 2016 for US steelmakers.

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