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U.S. Steel Imports Down YTD: Are Tariffs Really Helping?
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U.S. steel imports have dropped roughly 16% 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 largely reflects the impact of the 25% tariff on steel imports which the Trump administration had levied last year.
Per the AISI, total steel imports are down 15.9% year to date (through the first ten months of 2019) on a year over year comparison basis to roughly 24.77 million net tons. Finished steel imports are also down 17% year over year to 18.34 million net tons.
However, total steel imports went up in October on a monthly comparison basis. Total imports rose 14.5% from September to around 2.18 million net tons. Finished steel imports were down 3.5% to 1.48 million net tons. These figures are based on preliminary U.S. Census Bureau data, the AISI noted.
The biggest offshore suppliers for October were South Korea with 170,000 net tons (up 8% from September), Germany with 79,000 net tons (up 22%), Japan with 74,000 net tons (up 4%), Brazil with 59,000 net tons (up 54%) and Taiwan with 39,000 net tons (down 37%).
Finished steel import market share was estimated at 17% in October. That is down from 20% clocked for the same month a year ago. Finished steel import market share was estimated at 20% for the first ten months of 2019, down from 21% for the same period in 2018.
For 2019, annualized total and finished steel imports are expected to decline 11.9% and 14.3% year over year, respectively, per the AISI.
U.S. steel imports dropped roughly 12% last year under the weight of steep tariffs which the Trump administration imposed on imported steel under Section 232 of the Trade Expansion Act of 1962 in a big move to protect the domestic producers.
Steel imports have also dipped this year as a result of the tariffs despite complete exemptions of Canada and Mexico, two major sources of steel imports to the United States. The United States, in May 2019, reached a deal to lift steel and aluminum tariffs from Canada and Mexico. These major trade partners have long been pushing the Trump administration to repeal the tariffs. The deal paved the road for the ratification the new United States-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA).
The tariffs also drove up production capacity of U.S. steel producers amid lower imports. They helped domestic steel industry capacity break above 80% (the minimum rate required for sustained profitability of the industry) last year after remaining below that level for years. Improved capacity, driven by restarted steel mills, also provided a boost to U.S. steel production.
U.S. steel prices also marched higher during the first half of 2018, courtesy of steel tariffs. However, the momentum was short-lived as U.S. steel prices tracked downward in the back half of the year and also dropped through the first three quarters of 2019. The benchmark hot-rolled coil steel (HRC) prices went downhill through the second quarter of 2019 and continued their slide in the third quarter, partly due to demand weakness. Lower prices put downward pressure on selling prices of U.S. steel makers, hurting their bottom lines in the third quarter.
Notably, after rallying to multi-year highs on the back of steel tariffs, U.S. steel prices have now fallen back to the levels seen prior to the tariff announcement. Prices are still well below their peak level of roughly $920 per short ton (st) reached in July 2018. Higher domestic supply resulting from increased production contributed to the sharp decline in U.S. steel prices this year.
The Trump administration’s protectionist policies and bitter tariff battle with China have also largely contributed to the slowdown in the world economy. A slowdown in global manufacturing activity, partly due to trade war, is hurting demand for steel. Softness across major end-use markets such as automotive, construction and energy has led to demand weakness.
While the tariffs were lauded by U.S. steel makers, they hit major industries including automotive that are key consumers of steel. The tariffs have driven up manufacturing costs across these industries. The automotive industry, which consumes a big chunk of steel, is among the industries that has been hit the hardest.
Moreover, a slowing Chinese economy amid prolonged trade tensions with the United States has triggered a slowdown in steel demand in China, the world’s top consumer of the commodity. Sluggish automotive and construction sectors are also hurting steel demand in Europe, while demand in the United States is mostly hit by weakness in automotive. The global economic downturn and waning steel demand are other key factors for the decline in steel prices.
Some of the U.S. steelmakers have recently taken steps to reduce excess capacity in the wake of falling domestic steel prices. Capacity cuts have contributed to the recent decline in U.S. steel production.
Moreover, U.S. steel mills are raising prices in a bid to reverse the downswing in domestic steel prices. Driven by the price hike actions by flat-rolled and plate mills and lower production, HRC prices have turned upward in November from the three-year low level reached in October. However, a significant recovery in prices is not expected to materialize anytime soon given the weak domestic steel demand.
A Tough Year for U.S. Steel Stocks
The imposition of trade tariffs provided a breather to American steel stocks last year and drove their earnings. However, U.S. steel stocks have been out of favor for most of 2019 and most of them have underperformed the broader market. Sliding steel prices, softening demand across major markets and lingering trade tensions have weighed on steel stocks. Lower prices have hurt the bottom lines of domestic steel companies through the first three quarters of 2019. Moreover, the benefits of the Section 232 trade actions on steel imports have waned.
Nevertheless, shares of these companies gained some ground last month on hopes of a U.S.-China trade deal and some recovery in steel prices. Shares of United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) , AK Steel Holding Corp. and Steel Dynamics, Inc. (STLD - Free Report) popped around 14%, 5%, 17% and 11%, respectively, last month.
Moreover, shares of domestic steel companies got a lift yesterday after President Trump said that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina, effective immediately. Trump has accused these countries of devaluing their currencies which hurt American farmers. The Trump administration had exempted these two countries from the tariffs last year. The revival of tariffs is a positive development as Brazil is a major exporter of steel to the United States.
Despite the recent gains, shares of most U.S. steel stocks remain subdued on a year-to-date basis. Notably, U.S. Steel’s shares are down roughly 25% year to date. Moreover, shares of Nucor, U.S. Steel, Steel Dynamics and AK Steel are in the red over the past year. While a potential U.S.-China "phase one" trade deal by the year-end would provide a thrust to the shares of U.S. steel companies, any failure to strike an agreement could hurt these stocks.
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U.S. Steel Imports Down YTD: Are Tariffs Really Helping?
U.S. steel imports have dropped roughly 16% 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 largely reflects the impact of the 25% tariff on steel imports which the Trump administration had levied last year.
Per the AISI, total steel imports are down 15.9% year to date (through the first ten months of 2019) on a year over year comparison basis to roughly 24.77 million net tons. Finished steel imports are also down 17% year over year to 18.34 million net tons.
However, total steel imports went up in October on a monthly comparison basis. Total imports rose 14.5% from September to around 2.18 million net tons. Finished steel imports were down 3.5% to 1.48 million net tons. These figures are based on preliminary U.S. Census Bureau data, the AISI noted.
The biggest offshore suppliers for October were South Korea with 170,000 net tons (up 8% from September), Germany with 79,000 net tons (up 22%), Japan with 74,000 net tons (up 4%), Brazil with 59,000 net tons (up 54%) and Taiwan with 39,000 net tons (down 37%).
Finished steel import market share was estimated at 17% in October. That is down from 20% clocked for the same month a year ago. Finished steel import market share was estimated at 20% for the first ten months of 2019, down from 21% for the same period in 2018.
For 2019, annualized total and finished steel imports are expected to decline 11.9% and 14.3% year over year, respectively, per the AISI.
Weak Steel Prices, Waning Demand Offset Tariff Benefits
U.S. steel imports dropped roughly 12% last year under the weight of steep tariffs which the Trump administration imposed on imported steel under Section 232 of the Trade Expansion Act of 1962 in a big move to protect the domestic producers.
Steel imports have also dipped this year as a result of the tariffs despite complete exemptions of Canada and Mexico, two major sources of steel imports to the United States. The United States, in May 2019, reached a deal to lift steel and aluminum tariffs from Canada and Mexico. These major trade partners have long been pushing the Trump administration to repeal the tariffs. The deal paved the road for the ratification the new United States-Mexico-Canada Agreement (USMCA) to replace the North American Free Trade Agreement (NAFTA).
The tariffs also drove up production capacity of U.S. steel producers amid lower imports. They helped domestic steel industry capacity break above 80% (the minimum rate required for sustained profitability of the industry) last year after remaining below that level for years. Improved capacity, driven by restarted steel mills, also provided a boost to U.S. steel production.
U.S. steel prices also marched higher during the first half of 2018, courtesy of steel tariffs. However, the momentum was short-lived as U.S. steel prices tracked downward in the back half of the year and also dropped through the first three quarters of 2019. The benchmark hot-rolled coil steel (HRC) prices went downhill through the second quarter of 2019 and continued their slide in the third quarter, partly due to demand weakness. Lower prices put downward pressure on selling prices of U.S. steel makers, hurting their bottom lines in the third quarter.
Notably, after rallying to multi-year highs on the back of steel tariffs, U.S. steel prices have now fallen back to the levels seen prior to the tariff announcement. Prices are still well below their peak level of roughly $920 per short ton (st) reached in July 2018. Higher domestic supply resulting from increased production contributed to the sharp decline in U.S. steel prices this year.
The Trump administration’s protectionist policies and bitter tariff battle with China have also largely contributed to the slowdown in the world economy. A slowdown in global manufacturing activity, partly due to trade war, is hurting demand for steel. Softness across major end-use markets such as automotive, construction and energy has led to demand weakness.
While the tariffs were lauded by U.S. steel makers, they hit major industries including automotive that are key consumers of steel. The tariffs have driven up manufacturing costs across these industries. The automotive industry, which consumes a big chunk of steel, is among the industries that has been hit the hardest.
Moreover, a slowing Chinese economy amid prolonged trade tensions with the United States has triggered a slowdown in steel demand in China, the world’s top consumer of the commodity. Sluggish automotive and construction sectors are also hurting steel demand in Europe, while demand in the United States is mostly hit by weakness in automotive. The global economic downturn and waning steel demand are other key factors for the decline in steel prices.
Some of the U.S. steelmakers have recently taken steps to reduce excess capacity in the wake of falling domestic steel prices. Capacity cuts have contributed to the recent decline in U.S. steel production.
Moreover, U.S. steel mills are raising prices in a bid to reverse the downswing in domestic steel prices. Driven by the price hike actions by flat-rolled and plate mills and lower production, HRC prices have turned upward in November from the three-year low level reached in October. However, a significant recovery in prices is not expected to materialize anytime soon given the weak domestic steel demand.
A Tough Year for U.S. Steel Stocks
The imposition of trade tariffs provided a breather to American steel stocks last year and drove their earnings. However, U.S. steel stocks have been out of favor for most of 2019 and most of them have underperformed the broader market. Sliding steel prices, softening demand across major markets and lingering trade tensions have weighed on steel stocks. Lower prices have hurt the bottom lines of domestic steel companies through the first three quarters of 2019. Moreover, the benefits of the Section 232 trade actions on steel imports have waned.
Nevertheless, shares of these companies gained some ground last month on hopes of a U.S.-China trade deal and some recovery in steel prices. Shares of United States Steel Corp. (X - Free Report) , Nucor Corporation (NUE - Free Report) , AK Steel Holding Corp. and Steel Dynamics, Inc. (STLD - Free Report) popped around 14%, 5%, 17% and 11%, respectively, last month.
U.S. Steel, Steel Dynamics, Nucor and AK Steel currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Moreover, shares of domestic steel companies got a lift yesterday after President Trump said that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina, effective immediately. Trump has accused these countries of devaluing their currencies which hurt American farmers. The Trump administration had exempted these two countries from the tariffs last year. The revival of tariffs is a positive development as Brazil is a major exporter of steel to the United States.
Despite the recent gains, shares of most U.S. steel stocks remain subdued on a year-to-date basis. Notably, U.S. Steel’s shares are down roughly 25% year to date. Moreover, shares of Nucor, U.S. Steel, Steel Dynamics and AK Steel are in the red over the past year. While a potential U.S.-China "phase one" trade deal by the year-end would provide a thrust to the shares of U.S. steel companies, any failure to strike an agreement could hurt these stocks.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers “Most Likely for Early Price Pops.”
Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.6% per year. So be sure to give these hand-picked 7 your immediate attention.
See 7 handpicked stocks now >>