Last year, US President Donald Trump imposed a 25% tariff on US steel imports after the US Department of Commerce’s investigation found that steel imports were a threat to US national security.
Initially, steel stocks reacted positively to the news. However, we’ve seen a sell-off in steel names over the last year, and all steel companies—including U.S. Steel (X), Nucor (NUE), and AK Steel (AKS)—are down sharply from the levels they were trading at before the tariffs came into effect.
Uncertainty over tariffs
A plethora of factors, from global slowdown concerns to rising domestic steel supply in the United States, could be blamed for the weakness in US steel stocks. However, there’s another angle we need to consider. The markets are concerned about the longevity of the Section 232 tariffs. President Trump’s decision to fully exempt Canada and Mexico from the Section 232 steel and aluminum tariffs is a case in point.
Last year, the Trump administration took a hard line on Section 232 tariffs. Canada, Mexico, and the European Union failed to receive long-term exemptions as the Trump administration apparently pushed for quotas. US steel companies were expecting the Trump administration to impose quotas for granting Section 232 exemptions.
Canada and Mexico
Now, with full exemptions for Canada and Mexico, which happen to be the top two steel exporters to the United States, we could see an increase in steel imports from the regions. Others countries might also now like their chances of receiving full exemptions.
After the tariffs were announced last year, US steel companies announced massive investment plans that would increase US steel production capacity. These investments will enhance US steel production capacity, and if imports don’t drop, it could lead to higher supply, putting pressure on steel prices.