Section 232 exemptions
In the previous part, we discussed the key drivers behind the recent sell-off in US steel stocks like U.S. Steel Corporation (X) and Steel Dynamics (STLD). US steel companies, including Nucor (NUE) and AK Steel (AKS), are trading with year-to-date losses based on the closing prices on March 29. The watered-down Section 232 tariffs are among the factors that added to the bearishness in US steel stocks. In this part, we’ll see whether US steel names overreacted to the Section 232 exemptions.
The exemptions have left out two-thirds of US steel imports, which is certainly a bearish driver. However, we need to dig down further. First, the exemptions are temporary. According to the presidential proclamation, the exemptions have been granted “pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security.” The proclamation also said, “By May 1, 2018, the President will decide whether to continue to exempt these countries from the tariffs, based on the status of the discussions.”
Quotas could be imposed
So far, only South Korea has managed to get a long-term exemption from the tariffs. While steel imports from South Korea didn’t attract Section 232 tariffs, there’s a quota that would likely limit imports from the country. President Trump could impose quotas on more countries that get long-term exemptions from the tariffs. With the quotas, we should see a sustainable decline in US steel imports.
While the Section 232 tariffs look like a watered-down version of President Trump’s previous stance, they’re still in addition to existing trade remedies. The tariffs are supportive from a pricing perspective.
Next, we’ll discuss how falling Chinese steel prices threaten US steel stocks (MT).
Amid all of the broader market correction and trade war fears, US spot steel prices have held their ground.
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