President Trump is expected to formalize a 25% tariff on all steel imports. The Commerce Department had recommended a 24% global steel tariff as one of the options to Trump under the Section 232 imports probe. The Commerce Department is aiming to spur US steel production and improve the US steel industry’s capacity utilization rate, which was a dismal 72.3% last year. While releasing its Section 232 recommendations, it noted, “The quotas or tariffs imposed should be sufficient, even after any exceptions (if granted), to enable US steel producers to operate at an 80 percent or better average capacity utilization rate based on available capacity in 2017.”
Now, the steel tariffs are expected to dampen imports, thereby encouraging US steel buyers to order more steel from domestic steel mills. Now, looking at US steel mills, AK Steel (AKS) and U.S. Steel (X) have some of their flat-rolling facilities idled. These companies could take some time and test the water before announcing a restart. Apart from these facilities, the other flat-rolled running facilities of these companies are operating near their full capacity. Notably, U.S. Steel could also experience higher downtimes over the next two years as it revamps its facilities under its asset revitalization plan.
Steel Dynamics (STLD) operated its plants at 89% capacity in 4Q17. This means it has little incremental tonnage to offer in case we see a decline in imports. Nucor’s operating rate was 81% in 4Q17. Nucor (NUE) seems to have a higher latent capacity to market if we see imports drop. The company is also investing in new organic capacity (XME).
Trump’s proposed infrastructure investments could be crucial for Nucor, which we’ll explore in the next article.