U.S. steel imports dropped roughly 12% in 2018 under the weight of broad-based tariffs which the Trump administration imposed on imported steel under Section 232 of the Trade Expansion Act of 1962 a year ago.
According to the latest report from the American Iron and Steel Institute (“AISI”) – an association of North American steel makers – total and finished domestic steel imports are down 11.5% and 13.1% year over year, respectively, in 2018 to roughly 33.73 million net tons and 25.69 million net tons, respectively. Per the AISI, these figures are based on final U.S. Census Bureau data. Finished steel import market share was 23% for the year. That is down from 27% clocked in 2017.
The biggest offshore suppliers for 2018 were South Korea with 2,764,000 net tons (down 26% year over year), Japan with 1,383,00 net tons (down 8%), Germany with 1,339,000 net tons (down 5%), Turkey with 1,153,000 net tons (down 47%) and Vietnam with 1,110,000 net tons (up 48%).
Tariffs Put U.S. Steel Mills Back in Business
President Donald Trump, on Mar 8, 2018, signed orders imposing steep tariffs on steel and aluminum imports, defying a wave of criticism and threats of counter-measures from major foreign trade partners. The tariffs, which came into effect on Mar 23, are approaching the end of their first year.
The tariffs are aimed at rescuing the domestic steel and aluminum industries which had long been reeling under the onslaught of cheap imports and has suffered significant reduction in production and employment. The tariffs also fulfilled one of President Trump’s key election promises of bringing down America's massive trade deficit. The tariffs are, in particular, are targeted at countries with which the United States has significant trade deficits.
The Trump administration, in May 2018, moved ahead with tariffs on steel and aluminium imports from Canada, Mexico and the European Union following the expiration of temporary exemptions on these major U.S. allies. With this, all tariffs on steel imports went into effect from Jun 1, 2018. This was 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.
The 25% tariffs on steel imports have provided a breather to American steel makers and have put the wind back into the sails of the long-struggling U.S. steel industry. The tariffs have boosted production capacity of U.S. steel producers amid lower imports. They have helped U.S. steel industry capacity break above the important 80% level – the minimum rate required for sustained profitability of the industry.
American steel mills are also benefiting from higher domestic steel prices as a result of the trade actions. Higher steel prices boosted profits of U.S. steel makers in 2018. Leading U.S. steel companies such as United States Steel Corp. (X - Free Report) , Nucor Corp. (NUE - Free Report) , Steel Dynamics, Inc. (STLD - Free Report) and AK Steel Holding Corp. (AKS - Free Report) gained from higher realized steel prices in the fourth quarter.
While U.S. Steel has a Zacks Rank #5 (Strong Sell), Nucor, Steel Dynamics and AK Steel currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Leveraging strong cash flows, a number of American steel producers are investing to ramp up production capabilities and upgrade facilities. U.S. Steel restarted two blast furnaces last year at its integrated steelmaking plant, Granite City Works, in Illinois, which is expected to support the growing demand for steel made in the United States. The company, last month, also declared the restart of construction of an electric arc furnace steelmaking facility (with an expected annual capacity of 1.6 million tons) at its Tubular Operations in Fairfield. The company cited President Trump’s trade actions and improved market conditions as key drivers for the move.
Moreover, Steel Dynamics is currently executing a number of projects that should add to capacity. The company is investing $1.7-$1.8 billion to build a new electric-arc-furnace flat roll steel mill in the United States that is expected to have an annual production capacity of roughly 3 million tons.
Nucor is also significantly investing in a host of expansion programs to beef up capacity. These include a $650-million investment for expansion of the production capability of its flat-rolled sheet steel mill, Nucor Steel Gallatin, in Kentucky.
Nucor, earlier this year, also said that it plans to spend $1.35 billion to construct a new state-of-the-art plate mill in the U.S. Midwest that is expected to have a capacity to produce 1.2 million tons of steel plate products annually. The project, which is expected to create around 400 full-time jobs, will allow Nucor to supply plate products that it does not presently offer. The company said that trade actions and tax reform have provided it the confidence to make this investment.
While trade actions have provided a respite to U.S. steel makers, there are still uncertainties surrounding the tariffs including exemptions of countries. The Trump administration has already reached quota agreements on steel imports with Argentina, Brazil and South Korea. There is still a possibility that more countries will be exempted from the tariff orders on the basis of quotas.
Notably, there is an increasing pressure from various industry groups on the U.S. administration to remove the tariffs on steel and aluminium imports from Canada and Mexico.
The U.S. administration has not removed the tariffs even though leaders of the three nations, in November, signed the United States-Mexico-Canada Agreement (“USMCA”) to replace the North American Free Trade Agreement (“NAFTA”). Canada and Mexico have been pushing the Trump administration to repeal the tariffs. There is likelihood that Washington will eventually lift the tariffs on these countries and replace them with restrictive import quotas.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>