US steel prices
As we’ve learned, US steel prices have risen sharply this year. While factors such as a pickup in seasonal demand may have contributed to the rise, the key driver looks to be the trade action by President Donald Trump, who has moved to impose duties of 25% on all steel imports.
Canada and Mexico have been exempted amid the pending NAFTA (North American Free Trade Agreement) renegotiation talks.
Remember that there is an element of seasonality to US steel prices. In the last few years, we’ve seen US steel prices taper off in the second half of the year, with 2016 being an irregularity in this trend as US steel prices reversed their losses following President Trump’s election.
Furthermore, it’s not uncommon for steel prices to jump after a successful trade barrier. In 1Q16, US flat rolled steel prices rose sharply after duties were imposed on imports from countries including Korea and China. However, imports soon started to arrive from new locations, and we saw US steel prices soften after July 2016. Will 2018 be any different for US steel prices? Let’s discuss this in perspective.
Unlike traditional trade cases, in which the risk of imports from new locations is ever present, this time we have a comprehensive action against steel imports. This should support US steel prices in the near term and boost the earnings of steel companies such as AK Steel (AKS), Nucor (NUE), and Steel Dynamics (STLD). Cleveland-Cliffs (CLF), which supplies iron ore to some US steel producers, could also benefit from higher steel prices.
Having said that, there are still some risks for US steel prices that we’ll explore. Before that, in the next article, let’s see how the tariffs could benefit U.S. Steel Corporation (X).