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U.S. Steel Imports Shoot Up in July, Down YTD on Tariffs

Anindya Barman

U.S. steel imports have surged roughly 48% in July – according to the latest report from the American Iron and Steel Institute (“AISI”), an association of North American steel makers.

Per the AISI, total domestic steel imports shot up 48.3% from June to around 3.03 million net tons in July. Finished steel imports also went up 6.6% to 1.84 million net tons. These figures are based on final U.S. Census Bureau data, the AISI noted.

The biggest offshore suppliers for July were South Korea with 180,000 net tons (up 10% from June), Japan with 87,000 net tons (down 23%), Taiwan with 83,000 net tons (down 3%), Brazil with 80,000 net tons (up 423%) and Germany with 75,000 net tons (down 24%).

Despite the significant spike in July, total steel imports are down 10.6% year to date (through the first seven months of 2019) on a year over year comparison basis to roughly 18.67 million net tons. Finished steel imports are also down 16.4% year over year to 13.54 million net tons. The decline reflects the impact of the 25% tariff on steel imports which the Trump administration had levied last year.

Finished steel import market share was estimated at 19% in July. That is down from 20% clocked in June. Finished steel import market share was estimated at 21% for the first seven months of 2019.

For 2019, annualized total and finished steel imports are expected to decline 5.1% and 9.7% year over year, respectively, per the AISI.

Falling Steel Prices, Waning Demand Hurt U.S. Players

U.S. steel imports dropped roughly 12% last year under the weight of steep tariffs which the Trump administration imposed on imported steel under Section 232 of the Trade Expansion Act of 1962.

The tariffs instilled optimism in the long-struggling U.S. steel industry and helped domestic steel industry capacity break above 80% (the minimum rate required for sustained profitability of the industry) last year after remaining below that level for years. The tariffs drove up production capacity of U.S. steel producers amid lower imports. Improved capacity also provided a boost to U.S. steel production.

The Trump administration’s trade actions also largely helped U.S. steel companies to rack up solid earnings in 2018. The tariffs provided a boost to U.S. steel prices last year, driving profits and cash flows of American steel makers including United States Steel Corp. X, Nucor Corp. NUE and Steel Dynamics, Inc. STLD.

The trade actions also incentivized a number of U.S. steel makers to invest heavily on ramping up production capabilities and upgrade facilities. However, higher production, partly driven by restarted mills, has contributed to the sharp decline in U.S. steel prices this year.

Notably, after rallying to multi-year highs on the back of Trump administration’s imposition of tariffs, U.S. steel prices have now fallen back to the levels seen prior to the tariff announcement.

U.S. steel prices tracked downward in the back half of 2018 and continued to retreat this year. The benchmark hot-rolled coil steel prices went downhill through the second quarter. Prices are now well below their peak level of roughly $920 per short ton (st) reached in July 2018. They are down nearly 40% from the high levels reached last year.

Uncertainties surrounding global economic growth and concerns over a slowdown in steel demand in China (the world’s top consumer) amid a cooling Chinese economy are other factors for the decline in steel prices.

Waning steel demand poses problems for steel producers. Slowdown across major end-use markets such as automotive, construction and energy are hurting steel demand. Demand has softened across the United States and Europe.

Moreover, a slowing Chinese economy amid escalating trade tensions with the United States has triggered a slowdown in steel demand in China. Signs of weakness across the country’s major steel end-use markets — construction and automotive — as reflected by a slowdown in real-estate investment growth and falling car sales have clouded steel demand outlook.

While some of the U.S. steelmakers have recently taken steps to reduce capacity in the wake of declining domestic steel prices, the move is not expected to result in a significant recovery in prices anytime soon given the oversupply in the market and weak domestic steel demand.

U.S. steel stocks also have been out of favor this year. Shares of U.S. Steel, Nucor, Steel Dynamics and AK Steel Holding Corp. AKS have sagged roughly 41%, 9%, 12% and 3%, respectively, so far this year. Notably, shares of these companies are on a roller-coaster ride in August. Sliding steel prices, softening demand across major markets and trade tensions are weighing on steel stocks. Moreover, the benefits of the Section 232 trade actions on steel imports appear to be waning.

U.S. Steel, Steel Dynamics, Nucor and AK Steel currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Exemptions from tariffs is another concern. 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).

Canada and Mexico are two major sources of steel imports to the United States, together representing roughly a quarter of U.S. steel imports. Following the imposition of tariffs in March 2018, President Trump softened his stance by excluding Canada and Mexico from the tariff orders, noting that they represent “a special case”. However, the United States moved ahead with tariffs on steel and aluminium imports from Canada and Mexico after the expiration of temporary exemptions on these countries on Jun 1, 2018. Complete exemption of these two top steel exporters does not augur well for U.S. steel companies.

The Trump administration earlier had excluded Australia from the tariffs. Moreover, the United States reached quota agreements on steel imports with Argentina, Brazil and South Korea. There is still a possibility that other countries could be exempted from the tariff orders on the basis of quotas.

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