US steel stocks
As we noted previously in this series, US steel prices have peaked. We could see them gradually taper down as domestic steel production rises and the Trump administration defines the Section 232 exemptions.
Along with US steel prices, Chinese steel demand is also expected to have peaked according to some observers. With the peak steel sentiment growing, what’s the outlook for US steel stocks? Let’s discuss this issue in perspective.
Section 232 exemptions
While the Section 232 tariffs have lifted US steel prices, they haven’t supported US steel stocks’ price action. For example, AK Steel (AKS) and U.S. Steel Corporation (X) are trading with double-digit year-to-date losses. Nucor (NUE) has also underperformed the Dow Jones Industrial Average (DIA). Cleveland-Cliffs (CLF), however, has outperformed US steel stocks.
While peak steel price sentiment is gaining traction, markets seem to factor in a sharp slide in steel prices. However, we might not see US steel prices fall off a cliff. They may instead gradually taper down to a higher base compared to what we saw prior to the implementation of the tariffs. The Section 232 tariffs are expected to lead to structural improvement in US steel mills’ pricing power.
The China factor
Although China’s steel demand has likely peaked, it might not be able to export its steel woes the way it did in 2015. Several countries have duties in place for Chinese steel, and more countries could follow suit. This trend could prevent the 2015 steel industry crisis that was further aggravated by record Chinese steel exports. Depressed valuation, especially for U.S. Steel, leaves little scope for a downside unless we see a major correction in the stock markets or a sharp plunge in global steel prices.