Shares of American steel firms jumped in early trade on Monday after US president Donald Trump said he would be doubling tariffs on steel imports to 50% from 25%, effective June 4.
“We're going to bring it from 25% to 50%, the tariffs on steel into the United States of America, which will even further secure the steel industry in the United States," Trump said at a rally in Pennsylvania on Friday.
Shares of Cleveland-Cliffs Inc. (NYSE:CLF) surged 28.7%, Nucor Corp (NYSE:NUE) was up 11.7%, and Steel Dynamics Inc (NASDAQ:STLD) added 11.3%. The VanEck Steel ETF, which tracks companies in the steel sector, added 3.3%.
UBS analysts noted that this sharp increase in steel tariffs is set to significantly alter the domestic steel landscape, boosting US producer margins and potentially reawakening dormant production capacity.
Despite earlier tariff announcements and trade case victories, steel imports have remained surprisingly resilient, down only about 3% year-to-date through April, which the analysts attributed to “import dumping ahead of tariffs” and “demand uncertainty, leading service centers to delay restocking.”
With the new 50% tariff in place on all steel imports, UBS expects a rapid shift in pricing and market dynamics.
“US domestic steel producers are operating at about 78% utilization rates and therefore have capacity to increase production,” they wrote. “Sustained 50% tariffs opens the door for the reintroduction of previously unprofitable idled capacity and new capacity to enter the market in the medium to long term, in our view.”
Trump backs US Steel-Nippon partnership
Trump on Friday also praised the proposed merger of US Steel and Japan’s Nippon Steel, calling it a “blockbuster agreement.”
Trump said US Steel would be “controlled by the USA,” with its headquarters remaining in Pennsylvania, and involved “partial ownership” by Nippon Steel. The president also promised there would be “no layoffs and no outsourcing whatsoever,” and announced that every US Steel worker would receive a $5,000 bonus as part of the deal.
The proposed partnership, which includes a $14 billion investment aimed at revitalizing the expanding the US steel industry, is expected to create 70,000 jobs and boost domestic steel production capacity.
While specific details on the $7 billion allocated to modernizing and expanding mills are still limited, UBS expects that “incremental medium-term capacity” from these investments will displace imports. “However, in a consolidated market, we expect producers to achieve prices close to higher import breakevens if the tariffs stick,” they wrote.