Could President Trump Be US Steel’s Santa This Year?
By Mark O'Hara | Jul 3, 2017 12:16 pm EDT
According to Axios, Donald Trump is “hell bent” on imposing tariffs on steel imports despite opposition from most officials. You can read Part 2 and Part 3 in this series to find out why some observers are against duties on steel imports. In this part, we’ll see how steel companies like U.S. Steel Corporation (X) and AK Steel (AKS) could benefit if punitive duties are imposed on steel imports.
US steel prices
Most observers expect a steep increase in US steel prices if tariffs are imposed on steel imports. Duties on steel imports would increase the costs of steel products for US buyers and reduce the price differential between US and international steel prices. In some product categories, imported steel could even turn out to be more expensive than prices offered by domestic steel mills. In this case, it would help US steelmakers (MT) (NUE) increase their selling prices.
Higher production and utilization
We could see an increase in the US steel industry’s capacity utilization rate. According to the AISI (American Iron & Steel Association), the US steel industry’s capacity utilization rate was 74.2% for the week ending June 24, 2017. Notably, the US steel industry hasn’t operated above the 80% utilization rate, which is seen as healthy by some observers, since November 2014.
We could see an increase in US steel production and utilization rates after tariffs are imposed on imports, which could benefit the US steel industry in two ways. First, a higher capacity utilization rate could lower unit production costs for steelmakers (XME), especially those that produce steel using blast furnaces. Second, spare capacity leads to competition among domestic producers to capture market share.
Imposing tariffs on steel imports might just be many steel executives’ main wish this year. Over the next few weeks, we’ll get to see how President Trump manages steel buyers and producers’ wishes. It might not be easy to play “Santa” to both parties.
For the latest updates on the steel industry, visit Market Realist’s Steel page.