Market Overview

Steel Stocks Outperform Ahead Of Wednesday's Commerce Department Hearing

Steel Stocks Outperform Ahead Of Wednesday's Commerce Department Hearing
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Steel stocks were up big on Tuesday ahead of the Department of Commerce hearing on the Section 232 probe. The DoC is set to come out with more details regarding the impact steel imports has on U.S. national security.

Stock Movements

  • United States Steel Corporation (NYSE: X): Up 5.27 percent.
  • AK Steel Holding Corporation (NYSE: AKS): Up 9.55 percent.
  • Nucor Corporation (NYSE: NUE): Up 3.54 percent.
  • Steel Dynamics, Inc. (NASDAQ: STLD): Up 4.08 percent.
  • Worthington Industries, Inc. (NYSE: WOR): Up 3.29 percent.

Analyst Commentary

A Jefferies research analyst suggested a high probability of the DoC institutes more incremental trade defense measures but noted most of the investigation remains unknown going into Wednesday.

The report noted investors should expect “to garner a better understanding of the true breadth of the investigation with presenters likely to include domestic-international mills, industry groups, in addition to consumers/processors.”

Ultimately, trade lawyers believe the hearing will offer steelmakers an opportunity to share what regulations they would like to see. Lawyers believe the final measures from this probe could involve tariffs, volume restrictions, quotas or license fees.

The current administration is looking for a win, and signs are currently leaning towards a positive outcome according to the Jeffries report. Here’s what investors know so far:

  • The DoC is taking a holistic view of “national security”
    • This means they are looking at production/capacity, employment loss, displacement of domestic products by imports, etc.
  • Secretary Wilbur Ross had indicated he is aiming for broad measures
    • He has criticized antidumping/countervailing measures by calling them “porous” and stating that the measures could have more potential
  • Section 232 is viewed as a probe that is meant to help steelmakers while also not permanently impacting other trade methods according to the Jefferies report

How Has The Probe Impacted Buyer Behavior?

Many participants expect the Trump administration to enact broader measures and have adjusted their buying patterns. Some foreign mills have already told “domestic buyers” they would be forced to pay the potential tariffs which has led to some cancellations.

The DoC has 270 days to complete its investigation, but Ross has noted that the investigation could be finished by the middle of June. The hearing begins at 10:00 a.m. ET tomorrow.

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Latest Ratings for X

Mar 2018Vertical GroupDowngradesHoldSell
Mar 2018Credit SuisseMaintainsOutperformOutperform
Mar 2018Bank of AmericaDowngradesBuyNeutral

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