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Trump Tariffs Bearing Fruit as U.S. Steel Imports Drop YTD

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Much to the respite of American steel makers, U.S. steel imports have dropped roughly 10% year to date – according to the latest report from the American Iron and Steel Institute (AISI), an association of North American steel makers. The decline appears to reflect the impact of broad-based tariffs which the Trump administration imposed on imported steel under Section 232 of the Trade Expansion Act of 1962.

Per the AISI, based on preliminary U.S. Census Bureau data, total and finished domestic steel imports are down 10.1% and 10% year over year, respectively, year to date (through the first seven months of 2018) to 20.86 million net tons and 16.19 million net tons, respectively.

Finished steel import market share was estimated at 25% year to date. For 2018, annualized total and finished steel imports are expected to decline 6.2% and 6.1% year over year respectively, per the AISI.

The biggest offshore suppliers for the first seven months were South Korea with 1,932,000 net tons (down 15% year over year), Japan with 873,000 net tons (down 7%), Germany with 758,000 net tons (up 1%), Turkey with 721,000 net tons (down 58%) and Taiwan with 659,000 net tons (down 16%).

A Relief for U.S. Steel Mills

While the Trump administration’s move to slap a 25% tariff on steel imports has stoked concerns of a global trade war, there is no denying the fact that the tariffs have provided the much-needed protection to the American steel producers industry, which had long been grappling with the onslaught of cheap imports and has suffered significant reduction in production and employment. The continued surge of steel imports into the United States hollowed out much of the domestic steel industry last year.

The Trump administration, in May, moved ahead with tariffs on steel and aluminium imports from Canada, Mexico and the European Union (EU) following the expiration of temporary exemptions on these major U.S. allies. This marked a welcome move as Canada and Mexico are two major sources of steel imports to the United States, together representing roughly a quarter of U.S. steel imports. With this, all tariffs on steel imports went into effect from Jun 1.

The trade tariffs have provided a breather to American steel stocks including United States Steel Corporation (X - Free Report) and Nucor Corporation (NUE - Free Report) and instilled optimism in the long-struggling U.S. steel industry. The tariffs appear to be bearing fruit as reflected by a decline in U.S. steel imports year to date (through July 2018). While there are still uncertainties surrounding the tariffs, their impacts on imports are likely to be felt more deeply in the second half of 2018.

Moreover, steel prices have been on an upswing in the United States on the back of the trade actions, reflected by the run-up in hot-rolled steel prices. The trade tariffs contributed to a spike in U.S. steel prices, driving the performance of domestic steel makers in the second quarter. The pricing momentum is likely to continue in the third quarter, thereby providing a boost to margins of U.S. steel players.

Steel Stocks to Watch For

A few stocks worth considering in the steel space are Universal Stainless & Alloy Products, Inc. (USAP - Free Report) , Carpenter Technology Corporation (CRS - Free Report) , Allegheny Technologies Incorporated (ATI - Free Report) and EVRAZ plc (EVRZF - Free Report) . While Universal Stainless and Carpenter Technology sport a Zacks Rank #1 (Strong Buy), Allegheny and EVRAZ carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Universal Stainless has gained around 63% over the past year. Earnings estimates for the current year have been revised 24.2% upward over the last 60 days.

Carpenter Technology has an expected earnings growth of 43.2% for 2018. Earnings estimates for the current year have been revised 4.7% upward over the last 60 days. The stock has also rallied roughly 49% over the past year.

Allegheny has an expected earnings growth of 241.7% for 2018. Earnings estimates for the current year have been revised 18.8% upward over the last 60 days. The stock has also gained roughly 31% over a year.

EVRAZ has an expected earnings growth of 183.3% for 2018. Earnings estimates for the current year have been revised 30.8% upward over the last 60 days. The stock has rallied roughly 227% over the past year.

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