U.S. steel companies face downturn
Investors increasingly wary about industry’s long-term strength
WASHINGTON— U.S. President Donald Trump has latched on to the idea of using steel to build his wall along the southern border, praising himself for fulfilling two campaign promises at once: keeping out illegal immigrants and resuscitating a struggling industry.
“They were doing very poorly when I took office, and now they’re doing very well,” Trump said of U.S. steelmakers before boarding Marine One this month. “Our steel industry was dying, and now it’s very vibrant.”
But in the 10 months since the Trump administration imposed 25 per cent tariffs on steel imports, prices in the United States have now fallen back to levels last seen before the tariffs were announced March 1.
Hiring in the steel sector remains
stagnant, in part because new mills have become more reliant on automation. Even with the opening and restarting of several mills last year, direct steel industry employment was 146,300 as of November — 4 per cent lower than it was four years ago, according to the American Iron and Steel Institute. Industry analysts estimate that steel companies made 50 announcements of plans for new mills and investments last year and that three dozen plants were built or restarted.
Investors are increasingly wary about the industry’s longterm strength. Stock prices for some of the nation’s biggest steel manufacturers dropped by as much as 47 per cent in 2018 amid fears of slowing global economic growth and the potential for Trump to reach trade deals that remove the tariffs.
“We fully expect the players in the steel supply chain to have weaker years in 2019,” said Philip Gibbs, a metals analyst at KeyBanc in Ohio.
The Trump administration imposed sweeping steel and aluminum tariffs on trading partners like Europe, Canada, Japan and Mexico, saying it was trying to protect U.S. security by preventing a flood of cheap metals into the United States. The tariffs, which went fully into effect in June, initially goosed steel prices in the United States, which jumped more than 50 per cent after it became clear that the tariffs would really be put in place.
Trump has routinely pointed to the rising prices as a boon to U.S. steel companies. But the price spike ultimately hurt demand as industries that rely on the metal, like automakers and homebuilders, struggled to absorb the rising costs or passed them on to customers.
Caterpillar, the farm equipment manufacturer, said last year that it would face $200 million in additional costs because of the steel tariffs. General Motors slashed its profits forecast for 2018 because of higher steel costs. Many businesses chose alternative materials or delayed investments, putting pressure on steel prices, which have since fallen. According to S&P Global Platts, prices for U.S.-made hotrolled coil steel, the industry benchmark, jumped 41 per cent in the first half of 2018 and then fell about 21 per cent from that peak in the second half of the year. That trend is likely to continue this year.
U.S. steelmakers are feeling the pressure. Despite strong earnings in 2018, the stock prices of steel companies have been in a deep slump as investors fret that they are being propped up by government support that will be temporary. In the last year, shares of AK Steel are down 56 per cent, US Steel is down 46 per cent, Steel Dynamics is down 29 per cent and Nucor is down 18 per cent.
John J. Ferriola, chief executive of Nucor, said that the falling stock price is head-scratching because he believes that the industry is on solid footing. While Trump’s tariffs have provided a “tail wind,” a strong economy, tax cuts and antidumping measures put in place by the Obama administration have revived the steel industry, Ferriola said.
“There’s a lot of doomsday talk about the tariffs and a lot of misinformation,” Ferriola said. “I keep hearing about how it is driving down demand and putting our customers out of business. We had a record year last year, and many of our customers also had a record year.”
Nucor announced last week that it plans to build a $1.35 billion steel plant in the Midwest. However, trade experts and steel analysts worry the additional capacity could drive down steel prices even further and question whether such projects will eventually be scrapped if the economy cools.
In the near term, the steel industry’s best hopes for a meaningful lift would be Trump and Congress joining forces on major infrastructure legislation that would keep America’s steel mills churning.
With such movement unlikely amid partisan gridlock in Washington, some are hanging their hopes on the possibility of a border wall built with steel slats or, as Trump recently suggested, “steel that has concrete inside.”
According to an analysis conducted by the American Iron and Steel Institute, the industry’s lobbying group, an all-steel barrier along the border could consume as much as three million tons of steel.
“If they decide to build a barrier and decide to make it out of steel, the industry stands ready and capable and more than able to provide the steel and assist in the construction,” Ferriola said.