- This month, there has been some de-escalation in the US-China trade war. US steel stocks, which have traded on a negative note for most of the year, are rising in September.
- U.S. Steel, AK Steel, and Nucor have gained 4.8%, 6.0%, and 2.9%, respectively, this month.
Trade war de-escalation
This month, we’ve seen some visible de-escalation in the US-China trade war. Both sides spoke by phone this week, and face-to-face talks might resume in October.
Notably, the face-to-face US-China talks stalled in July. August marked a drastic escalation in tensions as both sides upped the ante with additional tariffs.
US steel companies have supported Trump’s tariffs. Last year, Trump announced a 25% tariff on US steel imports, which was welcomed by the domestic steel industry.
The AISI (American Iron & Steel Association) also supported the move to designate China as a currency manipulator. China’s yuan tumbled against the US dollar last month. A weaker yuan makes Chinese exports more competitive.
US steel stocks rise in September
However, the US-China trade war isn’t all good news for US steel stocks, which fell sharply in May and August as the trade war escalated. However, these stock prices have been strong this month amid the de-escalation.
U.S. Steel (X) and AK Steel (AKS) have respectively gained 4.8% and 6.0% this month. Nucor (NUE) is up 2.9% so far in September. However, looking at the year-to-date price action, X and NUE are in the red while AKS is slightly positive. Nonetheless, the entire metals and mining space is underperforming the broader markets this year.
Notably, the US-China trade war has subdued global metal market sentiments. The manufacturing and automotive industry slowdowns aren’t helping the steel industry, either.
As steel is a global commodity, the US steel industry cannot be an island for long. While there have been some instances where domestic prices have diverged from international prices, we should see reversion in due course.
What would a trade war de-escalation mean?
In our view, de-escalation in the US-China trade war would help restore positive sentiment in the metal markets. To be sure, trade uncertainty is not the sole reason that metal prices are depressed. China’s metal consumption growth rates have fallen, and the scenario is no different globally.
Geopolitical tensions have also increased uncertainty about metal prices. A US-China trade deal could help propel US steel stocks higher. Notably, US steel prices rose in June and July. However, prices are currently stagnated amid weak global macros and geopolitical uncertainty.
A trade war truce becomes especially crucial for steel companies as we approach the seasonally weak fourth quarter—particularly for domestic steel prices. In our view, trade uncertainty would only increase the metal and mining companies’ concerns.