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Why It’s Difficult to Price Assets amid Frequent Policy Changes

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Assets

We’ve seen significant volatility in markets this year. Metal and mining stocks, including Alcoa (AA), have whipsawed amid frequent policy changes. Meanwhile, despite Section 232 tariffs, US steel stocks have been subdued this year. Steel stocks’ price action could be attributed to two key factors.

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Uncertainty

Firstly, escalated US-China trade tensions have impacted Chinese steel prices, which were already reeling under sagging domestic demand. Secondly, and perhaps more importantly, there is uncertainty over the impact of Section 232 tariffs. Broader market sell-offs have also affected steel stocks. As of April 23, the SPDR Dow Jones Industrial Average ETF (DIA) had fallen 0.68% this year.

Exemptions

Donald Trump has temporarily exempted some countries from Section 232 tariffs until May 1, though it’s unclear whether these exemptions will be extended. So far, only South Korea has managed to get a long-term exemption from the tariffs. US steel producers are recalibrating their business plans. While U.S. Steel Corporation (X) has announced a plant restart, Nucor (NUE) has announced a new reinforcing bar mill. AK Steel (AKS) still has a plant idle.

Markets seem to have largely ignored the steep increase in spot steel prices. They may be valuing steel stocks by factoring in much lower steel prices, possibly due to uncertainty over the impact of Section 232 tariffs. While US steel prices have spiked this year, we could see them taper down if Trump exempts more countries. Simply put, it’s difficult to price assets amid policy uncertainty. Steel and aluminum could be textbook cases where policy uncertainty has made valuing stocks a more daunting task. For ongoing updates on this industry, visit our Metals and Mining page.

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