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Steel Industry in 2017: Realism Returned after Euphoria

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Steel industry’s 2017 recap

As we noted previously, US steel stocks had a somber 2017. The year would have been even more lackluster for US steel stocks without the rally in December. Notably, steel companies’ 2017 price action is in stark contrast to 2016 when companies like U.S. Steel Corporation (X) and AK Steel (AKS) more than quadrupled. Among other factors, President Trump’s election helped fuel a rally in US steel stocks in 2016. In this part, we’ll see how US steel stocks played out last year.

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Steel companies lost momentum

The beginning 2017 was good for steel stocks. They continued the positive momentum from 2016. However, we saw weakness in the middle of the year as US steel prices lost momentum. We also saw some divergence in US and international steel prices in the middle of the year. While US steel prices peaked in mid-2017, steel prices were strong globally. The divergence in US and international steelmakers’ fortunes is also visible in steel companies’ price action. ArcelorMittal (MT), which gets almost half of its revenues from Europe, outperformed its US-based peers last year.

President Trump’s policies

One of the factors that drove the euphoria around steel stocks was President Trump’s expected economic policies. Markets expected higher steel demand as a result of President Trump’s proposed infrastructure investments. On the trade front, there were expectations that President Trump would act decisively against the menace of higher steel imports. In April 2017, the Trump administration announced an investigation under the Section 232 of the Trade Expansion Act of 1962 to investigate whether steel imports threaten US national security. However, the probe’s findings were delayed as other economic reforms, especially the tax bill, took center stage.

The tide began to turn for US steel companies (NUE) (STLD) and the end of 2017. We’ll discuss this more in the next part.

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