uploads///US Steel falls Trump tariffs

US Steel Falls to 52-Week Low despite Trump’s Tariffs


Feb. 19 2020, Updated 8:14 a.m. ET

  • U.S. Steel Corporation (NYSE:X) stock made an intraday low of $8.65 on Tuesday before closing marginally higher for the day. The level was a new 52-week low for the stock and the lowest closing since the first quarter of 2016. In that quarter, the metal and mining sector fell amid concerns about China’s slowdown.
  • This year, there are concerns about China’s economy amid the coronavirus scare. Notably, in 2018, President Trump imposed a 25% tariff on steel imports. The tariffs led to higher domestic production and fewer imports. However, steel stocks sagged after the initial euphoria over the tariffs died down.
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US steel stocks

US steel stocks have been out of favor with markets for almost two years now. Two years ago, President Trump slapped a 25% tariff on steel imports after the Department of Commerce flagged them as a national security risk. Steel stocks rose sharply when the tariffs were announced. However, as 2018 progressed, they came under pressure. All of the leading steel stocks closed with massive losses in 2018. The stocks underperformed broader markets in 2019. The metals and mining sector has been weak this year amid the coronavirus scare.

While the broader steel space has been weak, X’s underperformance stands out. The company closed with losses last year even though its peers ended the year in the green. So far, the company’s stock has lost 22.6% in 2020 based on the prices yesterday. Notably, the stock hit a fresh 52-week low in yesterday’s trade. Currently, the stock is trading at its lowest level since the first quarter of 2016.

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China factor

In the first quarter of 2016, there was a slowdown in the metals and mining sector amid concerns about China’s slowdown. Domestic spot HRC (hot-rolled coil) prices fell below $400 per ton in what was a cyclical low for the global steel industry. However, while X stock has fallen to its lows in the first quarter of 2016, domestic HRC prices are way above the prevailing prices. That said, the company’s earnings were tepid last year. The company posted a net loss in the fourth quarter. Meanwhile, X will likely post a loss in the first quarter of 2020 as well.

Have Trump’s steel tariffs failed?

It would be easy to dismiss President Trump’s tariffs as a failure. All of the steel stocks are trading below the price levels when the tariffs were announced in 2018. However, domestic steel production has risen over the last two years. Notably, imports are running near multi-year lows. So, President Trump’s tariffs have led to import substitution. For steel prices and stock prices of domestic mills, a lot of factors are at play including global factors.

Can US steel stocks bounce back?

Earlier this year, I noted that steel could be a contra play this year. However, uncertainty due to the coronavirus changed the picture. The coronavirus is also threatening the Chinese economy’s fragile recovery. As a result, metal and mining stocks have fallen this year.

Can steel stocks bounce back? We’ll have to see how soon the coronavirus gets contained and what measures the Chinese government takes to boost the domestic economy. Meanwhile, Steel Dynamics (NASDAQ:STLD) could offer some value at the current price point.


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