However, the Trump effect seems to have run its course, as has been suggested by steelmakers’ recent price movements.
Has the trade run its course?
After a steep rally in 4Q16, steelmakers (NUE) (STLD) saw consolidation in 1Q17. Some steel stocks such as AK Steel saw massive downward price action in the quarter. In AK Steel’s case, concerns over US auto sales seemed to be playing heavily on investors’ minds.
Remember that almost two-thirds of AK Steel’s steel shipments are to the automotive sector. The company’s reliance on the sector has increased over the last year, as it has cut its exposure to commodity-grade spot steel products. As anticipated, US auto sales have shown moderation in 2017, with auto sales falling 1.5% year-over-year in 1Q17.
The recent downward pressure on steel stocks can likely be attributed to two factors.
Firstly, the markets seem concerned over Trump’s ability to push some of his pre-election promises through. As it stands, Trump has failed to get the recent healthcare bill through Congress. Trump will have to get Congress to approve the spending of large sums on the infrastructure sector, something Republicans haven’t been big fans of in the past, given their negative stance on stimulus-fueled growth and raising budget deficits.
Secondly, and more importantly, Chinese steel prices, as well as seaborne iron ore prices, have taken a beating over the last month. In the next article, we’ll look at the outlook for US steel prices amid falling Chinese steel prices.