U.S. steel, aluminium stocks up on Trump's tariffs, but other industries fear price rises

By Nick Carey and Arunima Banerjee

(Reuters) - Stock prices of U.S. steel and aluminium makers rose on Thursday after President Donald Trump announced hefty tariffs on metal imports to protect them from foreign competition, but many other companies saw stock price falls as they may face higher prices for raw materials which will force them to raise prices for consumers.

A proposed tariff of 25 percent on steel imports and 10 percent on aluminium boosted the stock prices of steel makers, but industrial companies, aircraft manufacturers, auto makers saw their stocks fall.

The likelihood of higher prices for consumer products resulting from the tariffs hit the U.S. stock market overall with the Dow Jones Industrial Average (.DJI) closing down more than 400 points, or almost 1.7 percent, on fears the tariffs would spark an international trade war.

The lack of detail about the tariffs created uncertainty as some countries might be exempt or taxed at a lower rate, while automakers and other users of the metals worried about retaliatory tariffs by other countries that might affect the cost of their finished products.

The move by President Trump may also further complicate trade talks between the United States, Canada and Mexico over renegotiating NAFTA where rules that would affect the auto industry are already a major sticking point.

Among steel makers, AK Steel Holding Corp (AKS.N) shares jumped 9.5 percent, U.S. Steel Corp (X.N) rose 5.7 percent, while Nucor Corp (NUE.N) and Steel Dynamics Inc (STLD.O) each gained more than 4.0 percent.

Aluminium producer Century Aluminum Co's shares (CENX.O) rose 3.3 percent, while Alcoa Corp (AA.N) edged up 0.2 percent.

But shares of the three major U.S. auto makers, which were already down due to weak new vehicle sales in February, fell further following Trump's announcement.

Shares of General Motors Co (GM.N) lost 3.97 percent, Ford Motor Co (F.N) was down 3.0 percent and Fiat Chrysler Automobiles (FCHA.MI) was down 2.8 percent.

The tariffs will hurt the U.S. economy by raising prices and may result in foreign retaliation against U.S. exporters, the Business Roundtable, a group of chief executive officers at the largest U.S. companies, said in a statement.

Brazil's Industry Ministry said the country may take action to protect its interests, noting that Brazil is the biggest importer of metallurgical coal from the United States. The European Union said it would propose countermeasures within days.

Canada also will retaliate if the U.S. imposes tariffs on Canadian steel and aluminium products, Foreign Affairs Minister Chrystia Freeland said on Thursday.

The cost of the tariffs would be hard to pass onto consumers amid declining auto sales, said John Toohey, head of equities at USAA Asset Management Company in San Antonio, Texas, which has $166 billion in assets under management.

"Tariffs are sand in the gears of economic activity, and automakers are right at the top of the list,” he said, citing the sheer volume of steel and aluminium they use to produce vehicles.

The auto sector accounted for 26 percent of demand for steel in the United States in 2017, behind the construction industry, at 40 percent of demand in 2017, according to data provider Statista. The energy sector was the third biggest user, at 10 percent.

With the auto industry already facing a year of declining sales as interest rates rise, tariffs would be yet another blow, Toohey said.

“Tariffs would be a big headwind for the auto industry,” he said.

U.S. auto industry sales fell 2.0 percent last year to 17.23 million vehicles after hitting a record high in 2016. New vehicle sales are expected to drop further in 2018 despite a solid economy.

Consumers could end up paying more for their cars and trucks, the American International Auto Dealers Association said.

“These proposed tariffs on steel and aluminium imports couldn’t come at a worse time,” said AIADA President and CEO Cody Lusk.

The U.S. oil lobby also criticized the move, noting that its members rely on steel imports in drilling, on and offshore production, pipelines, liquefied natural gas terminals and refineries.

U.S. natural gas trade groups said they are concerned the tariffs could delay or reduce new pipeline projects as well as dent exports of liquefied natural gas.

SHARES OF STEEL, ALUMINIUM COMPANIES SURGE

U.S. industrial companies also saw their stock prices fall on Thursday. Shares of construction and mining equipment maker Caterpillar Inc (CAT.N), plane maker Boeing Co (BA.N) and tractor maker Deere & Co (DE.N) all fell at least 2.5 percent.

Last week, Caterpillar’s director of investor relations, Amy Campbell, said the majority of the steel that Caterpillar uses for manufacturing comes from the United States.

The tariffs would pose a “challenge” as they would cause domestic steel prices to rise along with prices of imported steel, putting Caterpillar at a competitive disadvantage vis-à-vis their non-U.S. competitors.

(Reporting by Nick Carey in Detroit and Arunima Banerjee in Bengaluru; Writing by Lisa Shumaker; editing by Clive McKeef)