Trade war fears have kept markets under grips but are acting as the necessary evil for domestic steelmakers. Although it's too early to assess, let alone or predict, which industries will suffer the most because of the trade war, it can be safely said that domestic steelmakers stand to gain the most. Trump's decision to impose 25% tariffs on Chinese steel was cheered by domestic steelmakers and shares of U.S.-based steel companies are finally bouncing back.
Understandably, this has given confidence to domestic steelmakers, which have suffered for years. Now, steelmakers are expected to sustain their uptrend for days.
Trump to the Rescue of Domestic Steelmakers
It goes without saying that a trade war will take a toll on companies, which have seen investors' confidence getting dented over the last few months. However, on Mar 1, President Donald Trump decided to impose tariffs on steel imported from China, which was applauded by domestic steelmakers.
U.S. steelmakers have been suffering for years now. The decision came with the objective of helping rebuild the U.S. steel and aluminum industry as Trump believes that domestic steelmakers have been treated unfairly by other countries for decades. This saw shares of all major U.S. steelmakers jump on Mar 1. AK Steel Holding Corp AKS rose 9.5%, while U.S. Steel Corp X jumped 5.8%. Nucor Corporation NUE increased 3.3%, while Steel Dynamics Inc. STLD gained 4%. Steel Dynamics has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Moreover, Trump has constantly been stressing on the need to save the long-overlooked industries. U.S. steelmakers have lost three fourth of their jobs between 1962 and 2005. The U.S. Department of Commerce earlier this year said that the trade actions are aimed at increasing domestic steel production from its present capacity of 73% to approximately an operating rate of 80% - the minimum rate required for the long-term viability of the industry.
Domestic Steel Stocks Bounce Back
On Jul 6, U.S. imposed tariffs on $34 billion worth of Chinese goods, including a 25% import duty on steel. Consequently, China retaliated with tariffs on an equal amount of goods, thus starting a trade war. Fears further escalated last week, when Trump came up with fresh threats of imposing tariffs on another $200 billion worth of goods that once again unsettled markets.
However, domestic steel stocks have been performing well since then. Shares of United States Steel Corporation and AK Steel Holding Corporation have jumped 3% and 3.5%, respectively, since Jul 6. Similarly, shares of Steel Dynamics, Inc. and Nucor Corporation have increased 1.8% and 0.8%, respectively, over the same time period.
Moreover, this has led to a recovery in steel prices. Understandably, the 25% tariffs on steel import are expected to lead to lower imports into the United States, which would in turn boost demand for American steel and drive profitability of domestic steel makers.
According to the American Iron and Steel Institute (AISI), an association of North American steel makers, total steel imports dipped 2.7% year over year in the first five months of 2018. Imports also fell 23% on a monthly comparison basis in May.
Amid all trade war fears, domestic steelmakers seem to be one of the few that are definitely benefiting. This has seen steel prices surging in the United States, resulting in a rally in stocks.
Moreover, steel imports have dipped as a result of the tariffs. This will definitely help domestic steelmakers as the U.S. manufacturing sector will now have to rely more on home-produced steel.
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