Trump’s energy policy
There was a stark contrast between the publicly stated energy policies of Donald Trump and Hillary Clinton during the US presidential campaign season. Clinton, like President Obama, claimed to be a big advocate of renewable energy, promising that there would be 500 million solar panels by 2020 if she were elected. On the other hand, Trump claimed that he would throw his weight behind coal and shale gas.
What does Trump’s energy policy have to do with U.S. Steel (X), which is primarily a steel producer (NUE) (STLD)? Well, U.S. Steel was the leading steel supplier to the energy sector. The company’s tubular segment, which supplies steel products to the energy sector, was its most profitable segment.
However, the steep decline in energy prices changed the equation. U.S. Steel’s Tubular segment has posted massive losses for the past few quarters, as you can see in the graph above. Demand for tubular goods that are used by the energy industry has nosedived as new exploration activity has been hit due to lower energy prices. Though energy prices are still below price levels where energy companies would resume their capital investments, the new president’s support for the Keystone XL pipeline could boost demand for U.S. Steel’s tubular products.
Steelmakers like U.S. Steel, ArcelorMittal (MT), and AK Steel (AKS) use coking coal as a raw material for their blast furnaces. While analysts had written off coal long ago, it was actually the best-performing commodity last year mainly due to China’s capacity cuts.
If we see an increase in US coal production under Trump’s presidency, it would increase the coal supply in US markets. It would be fair to assume that more coal production would help in lowering coal prices in the United States. Lower coal prices would benefit steel producers like U.S. Steel that rely on outside parties for their coal needs.
While Trump’s proposed infrastructure investments would help revive US demand, he could also face some roadblocks. We’ll discuss these in detail in the next article.