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Alex Kimani

Writer, Divergente Research LLC

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Divergente Research LLC and Safehaven.com. 

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Steel Stocks Struggle Following Trump’s EU Tariff Concession

Steel

Stocks of major steel producers fell after president Trump suggested that he would backpedal on tariffs that had sent steel prices soaring. The president made those remarks at a joint press conference with European Commission President Jean-Claude Juncker where the two agreed to “resolve” steel tariffs between the U.S. and the EU.

Stocks of some of the largest steel producers have been whacked, with US Steel Corp (NYSE:X) and Steel Dynamics falling (NASDAQ:STLD) tanking six percent and three percent, respectively.

US Steel Corp, Steel Dynamics and Nucor have managed to pare some losses since a major dip on July 26:

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

In his usual ad-libbing, Trump announced that he had struck a preliminary deal with the EU and termed it “… a very big day for free and fair trade."

That was a sharp about-turn from remarks he had made 24 hours earlier when he declared that "tariffs are the greatest."

The Trump administration announced 25-percent tariffs on steel and a 10-percent tariff on aluminum in March. Canada, Mexico and the European Union were initially shielded from the tariffs, but those exemptions expired in May.

Happy with Tariffs

While trade wars have cast a dark shadow on parts of corporate America, it has brought good fortune to the steel industry. Related: Bears And Bulls Duke It Out In Crypto Markets

Reliance Steel & Aluminum (NYSE:RS) reported 20.6-percent revenue growth during its latest earnings call, the highest over the past 16 quarters. Meanwhile, Nucor Corp.(NYSE:NUE) saw its profits double with CEO John Ferriola telling analysts, "All in all, we're very happy with tariffs."

And he very well should be. Steel companies have been feasting on a price spike thanks to Trump’s 25 percent tariffs on imported steel.

The benchmark price of US-made steel has skyrocketed to $917 per short ton, a 41-percent price increase since the beginning of the year. Nucor has seized the momentum and plans to plow back $1 billion into its business to expand its operations.

US Steel and AK Steel Holdings Corp. (NYSE:AKS) are expected to report similarly strong earnings during their earnings calls this week, though not as much as Nucor since they are locked into annual contracts with fixed pricing.

But it’s not just the tariffs that have given these companies the rub of the green. Steel demand has been strong in an economy that has been clocking its fastest growth clip since 2014.

Steel Customers Feel the Heat

Understandably, steel customers are less than thrilled by the turn of events, with CEOs scrambling to reshuffle their supply chains and hike prices. Companies that use steel in their manufacturing processes have been feeling the pinch as material costs soar.

One such company is Brooklyn-based FJM Ferro, a company that fabricates steel used in Manhattan skyscrapers, which has seen material costs balloon more than 50 percent. Even giant companies have been getting squeezed. Auto giant General Motors (NYSE:GM) lowered its profit outlook last week citing a $300-million spike in commodity prices linked to higher steel and aluminum prices.

Related: U.S. Economic Growth Surges In Second Quarter

Meanwhile, the tariffs have been eating into the profits of 3M (NYSE:MMM), General Electric (NYSE:GE), Harley Davidson (NYSE:HOG) and hundreds of other companies.

Steel importers have filed a lawsuit challenging the constitutionality of Section 232 of the Trade Expansion Act that gives the U.S. president unfettered powers to impose tariffs and trade barriers if he thinks certain imports pose a threat to national security. The statute has rarely been invoked by past presidents and it’s going to be interesting to hear what the courts say about the matter.

But as things stand now, steel companies like Nucor and Reliance Steel have just seen their gravy train toppled, while hordes of steel customers breathe a cautious sigh of relief following Trump’s latest concession.

By Alex Kimani for Safehaven.com

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