US Steel Stocks: Don’t Count Your Chickens Yet!

• US steel stocks are rising today on multiple factors. Firstly, there’s rising optimism over a US-China trade deal. Secondly, Chinese steel exports plummeted in August.
• The US steel industry has long complained that China’s allegedly subsidized steel exports distort US and international markets. Last month, Chinese steel exports fell to multimonth lows.

US steel stocks are rising today. As of 11:45 AM ET, U.S. Steel Corporation (X), AK Steel (AKS), and Nucor (NUE) are up 4.5%, 5.9%, and 2.0%, respectively. Let’s see what’s driving today’s price action.

Firstly, there’s renewed optimism over US-China trade talks. Metals and mining stocks have been hit especially hard amid trade uncertainty. Stock prices tend to rise on any positive statement related to China trade talks. It’s worth noting that despite President Donald Trump’s tariffs, US steel stocks have sagged over the last year.

Secondly, Chinese steel exports plummeted last month. The US steel industry has long complained that China’s allegedly subsidized steel exports distort the pricing environment. China exported 5.01 million metric tons of steel last month—a year-over-year fall of 14.8%. Furthermore, in absolute terms, China’s August steel exports were at their lowest level since February. In February, China’s overall economic activity was lower due to the Lunar New Year. If we set aside February, China’s August steel exports were at their lowest level since January 2018. In general, lower Chinese steel exports are positive for global steel prices.

Furthermore, China’s overall exports were weak in August. While that doesn’t bode well for metals, markets are anticipating further stimulus from China. On September 6, China lowered the reserve ratio for banks in a bid to support its economy. Recession fears have also abated, and Treasury yields have risen. Overall, a flurry of factors is supporting US steel stocks. Add in steel stocks’ underperformance over the last year, and we have the perfect recipe for a sharp bounce back.

Having said that, all is not well with the US steel stocks. Domestic end user demand has been tepid, and US steel’s upward momentum has stalled. The property-led boom in China lifted this year’s steel demand. However, China’s steel demand growth rates might taper down next year. For now, though, trade war optimism and stimulus hopes are lifting steel stocks. As for a US-China trade deal, it’s better not to count our chickens before they hatch. Over the last year, there have been several rounds of trade optimism followed by a breakdown in US-China trade negotiations.