For an important update on this series, see Could Section 232 Tariffs Be a Toothless Tiger in the End?
US steel stocks
We’ve seen some weakness in US steel stocks in the past week. Steel companies have pared their 2018 gains after the recent sell-off. Looking at individual names, AK Steel (AKS) and the SPDR S&P Metals and Mining ETF (XME) have lost 12.9% and 3.0%, respectively, year-to-date—based on the closing prices on March 21. U.S. Steel Corporation (X) and Nucor (NUE) have seen upward price action of 10.2% and 2.8%, respectively. Cleveland-Cliffs (CLF), which supplies iron ore to US steel companies, has seen negative price action of 3.7% during this period.
Section 232 probe
Last year, the Trump Administration initiated a Section 232 probe to find out whether steel imports threaten US national security. The report’s findings were made public last month. The findings determined that steel imports are a threat to US national security. Notably, we saw a sharp rally in US steel stocks when President Trump indicated that he would impose a 25% duty on all steel imports.
Steel stocks’ reaction to the proposed duties wasn’t hard to comprehend. The higher level of steel imports has been a challenge for US steel companies. Almost one-quarter of US steel demand is met with imports. Higher imports also led to a lower capacity utilization rate in the US steel industry—something that the Department of Commerce intends to improve with the tariffs.
After the initial euphoria, markets seem cautious about the impact of the Section 232 tariffs. In this series, we’ll look at some of the factors that could concern steel investors despite the Section 232 tariffs.
Let’s start by looking at the recent trend in US steel prices.