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Could Trump’s China Deal Revive US Steel Stocks?

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China deal

US steel stocks including U.S. Steel Corporation (X) and AK Steel (AKS) have taken a beating over the last year despite the Section 232 tariffs that President Trump imposed. While uncertainty about the Section 232 tariffs and global slowdown fears took a toll on US steel prices in the second half of 2018, falling Chinese steel prices were a far bigger contributor.

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While Chinese steel exports account for only a small part of US steel imports, Chinese steel prices tend to drive the US (SPY) and global steel prices. Usually, Chinese steel prices act as a floor for global steel prices.

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Chinese steel prices

We’ve seen an uptick in Chinese steel prices, which you can see in the above chart. China’s steps to arrest its economic slowdown are visible in its economic indicators. The country has also relaxed the norms for the housing sector, which should boost its steel demand. The US-China talks seem to be heading toward closure. A trade deal with the US could also propel Chinese steel prices. Higher seaborne iron ore prices are another bullish driver for Chinese steel prices.

US steel prices have also stabilized over the last month. If Chinese steel prices continue their uptrend after the trade deal with the US, Chinese and US steel prices could move higher. Historically, barring small periods of divergence, US and Chinese steel prices have generally moved in tandem.

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