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Allegheny's A&T Stainless JV to Idle Facility Amid Tariffs

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Allegheny Technologies Incorporated’s ATI A&T Stainless joint venture (50% ownership interest) intends to idle its Direct Roll Anneal and Pickle (DRAP) operations in Midland, PA, by the end of June 2020. The company stated that the Section 232 tariffs are making the business unsustainable.

A&T Stainless imports semi-finished stainless slab products from Indonesia, which is used for making 60-inch wide stainless sheet products. Since March 2018, 25% tariff is levied on all imported stainless-steel products into the United States under Section 232. Further, A&T Stainless has paid more than $37 million in tariffs. Allegheny’s 2019 results were affected by losses of $19.3 million stemming from A&T Stainless joint venture.   

The company does not have any viable alternative to imports and have suffered unsustainable losses under this economic policy. The company’s efforts to obtain tariff exclusion have been unsuccessful so far. As a result, it has no choice but to idle the Midland operations.

Notably, operations at the facility will continue during an orderly idling process by the end of second-quarter 2020. The company stated that the DRAP will be idled in a way that would allow operations to resume in case tariff policies were changed substantially.

Shares of Allegheny have lost 70.3% in the past year compared with the industry’s 62.4% decline.

Zacks Rank & Key Picks

Allegheny currently carries a Zacks Rank #3 (Hold).

Few better-ranked stocks in the basic materials space are Franco-Nevada Corporation (FNV - Free Report) , Novagold Resources Inc. NG and Barrick Gold Corporation GOLD, all currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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Barrick has an expected earnings growth rate of 43.1% for 2020. The company’s shares have gained 40.2% in the past year.

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