On Wednesday, driven by the news of Donald Trump’s victory in the U.S. presidential election, shares of the four largest American steelmakers each rose by more than 10%. This is due to widespread market speculation that Trump’s victory will lead to a new round of trade protectionism and a reshaping of global trade rules. During his campaign, Trump promised to impose more tariffs on imports that threaten domestic industrial production and jobs.
Among the U.S. steelmakers, Cleveland Cliffs (CLF) saw the largest increase, up 22%. Nucor rose 17%, Steel Dynamics increased by 15%, and U.S. Steel gained 11%. The S&P steel sub-industry index, which includes these four major steelmakers and 11 other companies, rose as much as 14%, marking the largest increase in over 15 years.
Phil Gibbs, a senior steel industry analyst at Keybanc Capital Markets, mentioned that there is clear anticipation of steel inflation due to potential policies or tariffs. This year has been extremely challenging for the domestic steel industry, with benchmark prices having fallen more than 35% due to weak demand. CEOs from the largest U.S. steelmakers have warned about softening demand.
Trump has consistently supported using tariffs to protect American manufacturing. During his campaign, he proposed further reducing corporate tax rates from 21% to 15%. Steel demand surged during the pandemic but has since entered a downturn. If tariffs can raise steel prices and enhance industry profits, coupled with lower corporate taxes, this might provide a short-term boost for the steel industry, provided demand stabilizes.
The potential acquisition of U.S. Steel could draw attention again. Cleveland Cliffs had offered $35 per share to acquire U.S. Steel, followed by a higher bid from Japan’s Nippon Steel at $55. However, the deal faced opposition from the Biden administration and also from Trump. Nevertheless, given that Republicans generally favor mergers more than the current administration, there is a higher chance of the deal going through.
In the global market, U.S. steelmakers have a low market share, so industry consolidation could be beneficial, even if the merger involves a Japanese company.
While tariffs might provide short-term benefits to steel stocks, it is important to note that similar measures during Trump’s first term in 2018 didn’t prevent the industry’s decline in 2019. Tariffs can limit foreign competition but also increase consumer prices, dampening end-user demand. Additionally, in the global commodities market, the impact of tariffs on supply and demand is limited.
The steel industry currently faces a slowdown, but the automotive sector might change the outlook. For investors, it is crucial to focus on market-driven signals rather than relying purely on government-mandated tariffs.
