Rising steel prices
Commerce Secretary Wilbur Ross has expressed concern over rising steel prices in the United States. On June 20, Ross told the Senate Finance Committee that “there has been a lot of speculative activity, storing inventory, [and] withholding product from the market by various intermediary parties, so the price of steel, and for a while the price of aluminum, went up far more than is justified by the tariffs,” according to S&P Global Platts. Ross added that “there is no reason for tariffs to increase the price of steel by far more than the percentage of the tariffs, and yet, that is what is happening.” The US Department of Commerce is now investigating whether some market participants are “illegitimately profiteering” after the Section 232 tariffs.
Production still stagnant
US steel production has been stagnant despite the Section 232 tariffs. Although U.S. Steel Corporation (X) has announced the restart of two blast furnaces at its Granite City facility, AK Steel (AKS) still has a plant idle. Furthermore, US steel imports have spiked over the last two months as the spreads between US and international steel prices have expanded to record levels. The record spreads have meant that US steel buyers are better off buying some steel products from overseas producers, even after paying the tariffs.
Rebar is another case in point. The Turkish lira’s sharp fall is expected to lead to a surge in US rebar imports, according to Bank of America Merrill Lynch. Earlier this week, the brokerage downgraded Commercial Metals from “neutral” to “underperform,” indicating a preference for Nucor (NUE) and Steel Dynamics (STLD) over Commercial Metals (CMC). In the next article, we’ll conclude this series with a look at what’s making Ross concerned.