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U.S. Steel: 8 Months After The Tariffs

2018-12-06

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Summary

U.S. Steel was able to raise steel prices 10% in Q2, increasing revenue by 15%, operating profit by 38%, and raising its full-year profit guidance for 2018 more than triple.

In the meantime, shares of U.S. Steel have lost close to 30% in 2018.

Between U.S. tariffs and the retaliatory tariffs, the entire U.S. steel consumption is being “taxed” by an additional 25%.

In light of increased steel cost, about 21,000 US companies have filed for tariff exclusions.  It is estimated that tariffs against China alone could cost 134,000 US jobs. Steel and aluminum tariffs could cost 470,000 jobs.

Investors appear to pick up the clue of an emerging recession on its way.  U.S. Steel's stock has been trading 30% below its significantly improved fundamental level.

In February of this year, President Trump announced a 25% tariff on import steel in order to “boost American industries and correct unfair trade practices by other countries.” Among many supporters, Commerce Secretary Wilbur Ross said. "When you're thinking about the overall economy, it's not just the trivial increase in product prices, it's also the increase in employment and the strength of the economy overall.” For the first few months, the President's plan seems working. Steel imports fell 34% from April to June, prompting job growth. U.S. Steel (NYSE: X) restarted facilities in Granite City, Illinois, which accounts for 800 jobs. Prices of its US-made steel rose 5% to 10% in Q2 and shipments increased revenue by 15%. The company also reported its second quarter operating profit rose 38% and raised its full-year profit guidance. It expects profit for 2018 to more than triple.

However, if you think that U.S. Steel, the obvious beneficiary of the 25% steel tariff, has been better off because of the tariff, you will be proved wrong. Briefly after gaining about 25% due to the tariffs announcement, shares of U.S. Steel have lost close to 30% year to date, compared with a basically flat S&P 500. Note: 1801 = January 2018

Source: Seeking Alpha

  
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