Much to the respite of American steel makers, total U.S. steel imports have dropped 15% in 2019 – 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 in 2018 under Section 232 of the Trade Expansion Act of 1962.
According to the AISI, total and finished domestic steel imports are down 15% and 17.9% year over year, respectively, in 2019 to roughly 28.66 million net tons and 21.08 million net tons, respectively. The AISI noted that these figures are based on Commerce Department’s most recent Steel Import Monitoring and Analysis (“SIMA”) data. The data include SIMA permits for December and final imports for November.
Finished steel import market share was 19% for the year. That is down from 23% clocked in 2018. For December, finished steel import market share was estimated at 15%.
The biggest offshore suppliers for 2019 were South Korea with 2,606,000 net tons (down 6% year over year), Japan with 1,256,000 net tons (down 9%) and Germany with 1,046,000 net tons (down 22%).
Tariffs – A Relief for U.S. Steel Mills
The Trump administration, in March 2018, imposed 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 have made imports more expensive, are nearing the end of their second 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. They are, in particular, targeted at countries with which the United States has significant trade deficits.
While the tariffs on steel imports badly hit certain major industries including automotive that are key consumers of steel, they 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.
Per the AISI, U.S. steel mills operated at 82% of their capacity for the week ending Jan 4. Capability utilization rate for the week also rose from 79.4% a year ago.
U.S. steel imports fell roughly 12% in 2018. Imports also declined in 2019 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).
President Trump, in early December 2019, announced that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina. Trump accused these countries of devaluing their currencies which hurt American farmers. The White House had exempted these two countries from the tariffs in 2018 as they continued to negotiate over trade terms. However, the Trump administration later in December backtracked on its decision to reimpose tariffs on Brazilian imports. Brazil is a major exporter of steel to the United States. Tariffs on Argentine steel also have not yet been enforced.
Prospects for U.S. Steel Industry Appear Encouraging
The American steel industry bore the brunt of a sharp decline in domestic steel prices in 2019, hurting profits of U.S. steel makers. However, there have been some recovery in steel prices over the past couple of months, raising hopes for a reversal of fortunes in 2020.
After a downswing through the first three quarters of 2019, U.S. steel prices appear to have bottomed out. Driven by consecutive price hike actions by major U.S. steel mills and supply-side actions, prices have gained some upward momentum of late. Steel mills’ continued push for price hikes are expected to drive U.S. steel prices further over the near term. Higher prices would lend support to margins of domestic steel producers.
Easing U.S.-China trade tension is another tailwind for the industry. The prolonged trade conflict has taken a heavy toll on the Chinese economy. A slowdown in the Chinese economy also contributed to sluggish steel demand in China, the world’s top consumer of the commodity. Nevertheless, the de-escalation in trade tensions due to the recent announcement of the preliminary U.S.-China trade deal augurs well for the steel industry as it is expected to lead to an improved demand environment for steel this year.
Steel Stocks Worth a Look
A few stocks currently worth considering in the steel space are Commercial Metals Company (CMC - Free Report) , Steel Dynamics, Inc. (STLD - Free Report) , Nucor Corporation (NUE - Free Report) and Carpenter Technology Corporation (CRS - Free Report) .
Commercial Metals sports a Zacks Rank #1 (Strong Buy). It has an expected earnings growth of 18.3% for fiscal 2020. The Zacks Consensus Estimate for current fiscal earnings was revised 19.4% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Steel Dynamics carries a Zacks Rank #1. Consensus earnings estimates for the current year was revised 4.7% upward over the last 60 days. The stock also has an expected long-term earnings per share growth rate of 12%
Nucor has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for earnings for 2020 was revised 2.5% upward over the last 60 days. The company also delivered a positive earnings surprise in each of the trailing four quarters, with an average beat of 6%.
Carpenter Technology, carrying a Zacks Rank #2, has an expected earnings growth of 12.1% for the current fiscal year. It also delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 5.5%.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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