Earlier in 2018, President Trump slapped a 25% tariff on US steel imports and a 10% tariff on aluminum imports. For US steel and iron ore producers like U.S. Steel Corporation (X), AK Steel (AKS), and Cleveland-Cliffs (CLF), the higher level of imports is their greatest challenge. The companies said that the imports are unfairly subsidized by foreign governments.
Almost eight months ago, the tariffs were imposed under Section 232 of the Trade Expansion Act of 1962. The tariffs lifted US spot steel prices to a decade high and boosted steel companies’ earnings. Despite the higher earnings, steel stocks have been out of favor with the markets. Steel Dynamics has lost 3.6% year-to-date based on the closing prices on November 8. Nucor (NUE) is trading with a marginal gain of 2.7%. In contrast, the SPDR S&P 500 ETF (SPY) rose 6.5% during the same period.
Steel companies posted either record or near record earnings in the third quarter. Companies like Nucor and Steel Dynamics have announced massive share buybacks. Even U.S. Steel Corporation, which isn’t exactly known for a strong balance sheet, announced a $300 million share buyback during its third-quarter earnings release.
US steel stocks appear to be on strong footing. So, what exactly is ailing US steel stocks in 2018?