US equity markets are deep in the red today, and the S&P 500 (SPY) is down 2.4% as of 12:10 PM ET. The SPDR S&P Metals and Mining ETF (XME) is underperforming the broader markets and has lost 4.4%. U.S. Steel (X), AK Steel (AKS), Nucor (NUE), and Cleveland-Cliffs (CLF) are down 6.8%, 6.6%, 4.2%, and 5.0%, respectively.
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Despite the Section 232 tariffs that President Trump imposed last year, US steel stocks have fallen out of favor with markets. We saw some recovery in steel stocks in the first quarter as China’s slowdown concerns eased. The recovery in US equity markets also supported US steel stocks.
Now, with the US-China trade war taking an ugly turn with both sides hiking tariffs, markets are concerned that China’s fragile economic recovery could be derailed. The country is the largest steel producer and exporter, and Chinese steel prices tend to influence global steel prices also.
To make matters worse for steel companies, China today reported that its auto sales plummeted 14.6% in April. The country’s car sales have now fallen year-over-year for ten consecutive months. The automotive industry is the second-largest steel consumer, so slowing demand from the sector could hurt Chinese steel demand.
Plus, with the escalating trade war, business as well as consumer sentiment could take a hit in China. The country’s steel prices, which have actually outperformed US steel prices this year, could reverse course as concerns rise over economic recovery. ArcelorMittal (MT), the leading steel producer globally, hit a new 52-week low today. US steel stocks might also test their 52-week lows if the trade war escalates further.