[av_heading heading=’Steel Stocks Hit Hard as DOC Ruling on Imports Disappoints ‘ tag=’h3′ style=’blockquote modern-quote’ size=” subheading_active=’subheading_below’ subheading_size=’15’ padding=’1′ color=” custom_font=”][/av_heading]
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17 Apr 2017
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Steel stocks took a tumble after the anti-dumping duty determinations of the U.S. Department of Commerce (“DOC”) on imports of oil country tubular goods (“OCTG”) from South Korea fell short of market expectations.
The DOC recalculated anti-dumping duties on imports of OCTG – used mainly by oil and gas industries in drilling and extraction operations – from South Korea after concluding that steel producers of that country have been unfairly dumping these products in the American market, causing harm to U.S. businesses and workers. The commerce department raised duties on OCTG imports to a range of 2.76% to 24.92% from the earlier range of 4% to 6.5% determined in Oct 2016.
The DOC said that it has exercised its authority for the first time under a provision of the recently enacted Trade Preferences Extension Act of 2015 (“TPEA”) to address distortions in the market and calculate dumping margins that more accurately account for the unfair pricing practices of overseas exporters. The commerce department, in the Korean import case, found that prices of the hot-rolled coil used to make OCTG were distorted.
Per the DOC, imports of OCTG from South Korea were valued at an estimated $1.1 billion from Jul 2014 to Aug 2015 (the administrative review period), representing 25% of all imports in that product category. American steelmakers have suffered heavily due to a torrent of OCTG imports, reflected by idling of mills and jobs losses.
OCTG products, which play a pivotal role in building and maintaining the nation’s energy infrastructure, are being illegally dumped at unfairly low prices in the American market which happens to be the most open and attractive market in the world and a hotspot for overseas steelmakers looking to capitalize on the country’s booming shale oil and gas industry.
However, the DOC’s move disappointed investors, sending stocks of major steel makers tumbling yesterday. The negative sentiment was partly evoked by the comments of Axiom Capital analyst, Gordon Johnson, who said that steel market pundits were expecting higher taxes on South Korean imports.
The markets were reportedly expecting duties of 30% to 40%. Last month, Peter Navarro, the director of the White House National Trade Council (“NTC”), also officially asked the DOC for at least 36% tariff on South Korean OCTG imports citing a “particular market situation” as the reason for the tariff adjustment. As such, the DOC’s duty revision on these imports was considered inadequate by the markets and also raised doubts about White House’s protectionist policies.
U.S. Steel X was the worst hit with shares sagging around 10%. Moreover, AK Steel’s AKS shares tumbled roughly 7.5% while Nucor NUE, Commercial Metals CMC and Steel Dynamics STLD lost around 4.3%, 3.9% and 3.8%, respectively. ArcelorMittal MT, which has significant operations in the U.S., saw its shares tank roughly 6.8%.
While both U.S. Steel and Arcelor Mittal hold a Zacks Rank #1 (Strong Buy), AK Steel, Nucor, Steel Dynamics and Commercial Metals carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
The steel industry is expected to be one of the key beneficiaries of Trump’s presidency. President Trump’s call for $1 trillion of new infrastructure spending is likely to have a beneficial effect on the steel industry given the expected increase in steel consumption. Trump’s “big” spending plans have thus painted a bullish picture for steel companies.
Trump’s aggressive trade policies are also expected to provide more protection to the U.S. steel industry. U.S. steel makers recently hailed the Trump Administration’s executive actions geared at improving duty collection and further identifying and addressing root causes of unfair trade practices that have cost the U.S. government billions of dollars in lost revenues. The executive order directs U.S. Customs and Border Protection (“CBP”) to chalk out a plan to lessen importer fraud and ensure adequate duty collection.
The steel industry has staged a recovery after being in a rut for long. The Steel-Producers industry has outperformed the broader market in the past year. The industry has gained around 20% in this period, higher than the S&P 500’s corresponding return of around 12%.
Source – finance.yahoo.com
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