Steel Stocks Pop As U.S. Slaps Huge Duties On Vietnam Imports

Shares of major American steel makers got a lift yesterday after the U.S. Department of Commerce (DOC) issued positive preliminary rulings on imports of corrosion-resistant steel (CORE) and certain cold-rolled steel flat products into the United States from Vietnam that are made from materials originating in China. The DOC has imposed heavy tariffs on these imports after finding that they have been skirting U.S. anti-dumping and countervailing duty orders.

Shipments of CORE to the United States from Vietnam have surged to $80 million from $2 million after preliminary duties were levied on Chinese products in 2015. Moreover, cold-rolled steel shipments from Vietnam to the United States have shot up to $215 million from $9 million after preliminary duties were imposed on Chinese products two years ago.

Domestic producers of CORE and cold-rolled steel including United States Steel Corporation (NYSE:X) , AK Steel Corporation (NYSE:AKS) , Nucor Corporation (NYSE:NUE) , Steel Dynamics, Inc. (NASDAQ:STLD) and ArcelorMittal USA LLC, part of ArcelorMittal (NYSE:MT) , had filed the complaint in September 2016.

The DOC will now instruct U.S. Customs and Border Protection (CBP) to start requiring cash deposits on imports of CORE and cold-rolled steel made in Vietnam using substrate originating in China.

The CBP will collect anti-dumping and countervailing cash deposits on imports of CORE made in Vietnam using Chinese-origin substrate at rates of 199.43% and 39.05%, respectively. Moreover, the CBP will collect anti-dumping and countervailing cash deposits at rates of 265.79% and 256.44%, respectively, on cold-rolled steel imported from Vietnam that are produced from substrate originating from China.

The DOC is expected to issue its final rulings on these investigations on Feb 16, 2018.

Steel Stocks Take Flight

The ruling marks yet another victory for crisis-hit U.S. steel companies in their ongoing battle against unfairly-traded, subsidized imports that continue to flood the American market.

The DOC’s ruling provided a boost to the stocks of leading domestic steel companies that are struggling to cope with a renewed tide of cheap steel imports this year. U.S. Steel racked up the biggest gain with its shares rising as much 7.8% yesterday. AK Steel’s shares popped 6.6% while Steel Dynamics and Nucor notched up 3.7% and 2.5% gains, respectively.

U.S. Steel lauded the DOC’s move and said, in a statement, yesterday that “The Commerce Department’s finding of circumvention represents a critical step to shutting down one of the many paths used to flood the U.S. with dumped and subsidized steel." The steel giant also urged President Trump and U.S. Commerce Secretary Wilbur Ross to take immediate and broad action in the Section 232 investigation on steel imports and national security.

AK Steel also hailed the ruling and stated that "We are pleased with this decisive action by the Commerce Department against foreign producers and importers who have been and continue to attempt to circumvent our trade laws."

U.S. Steel, Nucor, AK Steel and Steel Dynamics each carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Imports Still Haunt U.S. Steel Mills

Imports of cheap steel continue to flood American shores despite a string of punitive trade actions (in the form of heavy tariffs) and threats of further future measures. Total steel imports have shot up roughly 19% to around 32.9 million net tons through the first ten months of 2017 – according to the American Iron and Steel Institute (AISI), an association of North American steel makers.

Finished steel imports for the same period also increased roughly 15% to around 25.4 million net tons, per the AISI. Year to date, finished steel import market share is estimated at 28%, which is higher than 26% clocked in full-year 2016.

A surge in steel imports put pressure on U.S. steel prices during the third quarter. Continued import pressure has not allowed steel pricing to keep pace with higher raw material costs during the quarter.

U.S. steel makers continue to pin their hopes on President Trump imposing new restrictions on imported steel. The Trump administration, in April 2017, ordered an investigation under Section 232 of the Trade Expansion Act of 1962 aimed at determining whether the imports pose a threat to national security.

However, the Trump administration has delayed the release of the report on the Section 232 probe, which was initially expected at the end of June 2017. The Commerce Department has until mid-January 2018 to conclude the investigation.

A positive outcome from the investigation will give the Trump administration the opportunity to take broad-based trade actions (in the form of tariffs or quotas) against cheap imports. This would also give domestic steel makers more pricing power.

Zacks' Hidden Trades

While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?

Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.

Click here for Zacks' secret trade>>