US steel industry
Nucor (NUE) sounded positive about the US steel industry’s outlook while releasing its 1Q18 earnings guidance. The company noted, “We believe there is significant optimism in steel end use markets, and we are encouraged by recent actions made by the Trump administration to address the massive flood of dumped and illegally subsidized imports into the United States.”
In our view, this optimism is not unfounded. US HRC (hot rolled coil) steel prices, which are considered a benchmark for steel prices, are hovering near multiyear highs. Higher steel prices should support the earnings of companies such as U.S. Steel Corporation (X), Steel Dynamics (STLD), and AK Steel (AKS).
However, the full impact of higher steel prices is expected to be fully reflected in the coming quarters. There is a lag between a steel company booking a sale and the steel being shipped to the buyer.
Some of the spot sales that US steel companies expect to make in 1Q18 were booked when steel prices were lower than the current spot prices. Some of these contracts were rolled over before the recent spike in steel prices.
Section 232 tariffs
Unlike previous trade cases, in which US steel prices failed to hold their gains after a successful trade case, the Section 232 tariffs are global in nature. By leaving the door open for more country-wise exemptions, President Trump has left a proverbial hanging sword over US steel companies.
Currently, only Mexico, Canada, and Australia have been exempted from the duties. If more countries can get exemptions from the Section 232 tariffs, this would be a negative impact on US steel prices (XME).
In the next article, we’ll look at Nucor’s outlook and see how analysts are rating the stock this year.