In March of 2018, President Donald Trump implemented sweeping tariffs on steel and aluminum, largely to combat a flood of low cost steel coming from China. The tariff on steel was set at 25% and remains so today.
This move quickly boosted the steel industry in the United States, but the increased economic activity has not resulted in gains for shareholders. In fact, two of the largest publicly traded companies are yet to experience the growth that has existed throughout most of the market in 2019.
Nucor and U.S. Steel Fail to Realize Stock Gains
Nucor and United States Steel are the two largest producers in the country.
- Nucor Corp. (NYSE: NUE) stock is up 3.61% this year but is down -16.41% when looking at stock over 12 months.
- S. Steel Corp (NYSE: X) has performed even worse, dropping -18.31% year to date and -57.96% over 12 months.
In the case of U.S. Steel, analysts believe that stock could hit $10 this year, compared to a 52-week peak of $39.23.
In 2018, customers feared that tariffs would hurt supply, so they went big on orders during the first half of last year. These customers ended up with stockpiles, and this lead to decreased demand. Prices eventually came down, cutting into manufacturers revenues and profits. The construction sector also experienced a dip in 2018, as did the automotive sector. This compounded the problem for companies like Nucor and U.S. Steel.
Are Low Stock Prices an Opportunity?
The United States steel industry is in a reasonably strong position. Less competition from China and other markets makes American products more attractive. Eventually, customer stockpiles will deplete, and domestic demand should stabilize.
Analysts don’t expect to see a recovery until at least the tail end of 2020, which could leave stocks stagnating or even declining in the mid-term future.
Today’s prices could be an opportunity to buy, but only for those investors who believe that the market can eventually recover. Incoming trade agreements with Canada and Mexico will introduce even more into the U.S. market and will increase competition. The window for American producers to take advantage of tariffs was relatively small and has now passed.
Steel could still be a strong long-term pick, but investors should be aware that it could take years to see returns from companies like Nucor and U.S. Steel.
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