How Much Can a Positive Implication of Section 232 Impact U.S. Steel?

Cheap steel imports from China have been a major concern for U.S. steel producers, especially in the past two years due to a sustained increase in these steel imports. With the decision of the Section 232 probe due in the next 3 months, we expect a favorable resolution by President Trump could result in an upside of 20% on U.S. Steel‘s (NYSE:X) stock price.

U.S. steel producers have appealed to the U.S. government for stringent actions against cheap steel imports, on the basis of which President Trump had directed an investigation in April to discern the impact of such imports on U.S. national security. The findings of the sought-after Section 232 probe has recently been sent to the President by the U.S. Commerce Department and the President has about 90 days to decide on any potential action that needs to be taken based on these results.

Although tariffs have historically been imposed in the U.S. to curb imports, steel imports have not seen a decline in its share despite such efforts. Total steel imports in the country were up by 15.5% in 2017 and accounted for 27% of the market share. This was primarily because China has been routing its imports through other countries such as Vietnam in order to circumvent tariffs. In such a scenario, we anticipate President Trump to levy stringent import quota and tariffs on several countries in the next 90 days.

Restricting foreign imports would create a favorable business environment for U.S. steel producers in the upcoming year. Focusing primarily on U.S. Steel, we expect President Trump’s decision to have a significant impact on its U.S. flat-rolled product division. We have created an interactive model that details how changes in the shipment and average price realization in the U.S. flat rolled division could lead to an upside of 21% to our current price estimate. 

Although imposition of punitive duties might result in a distortion of the U.S.’s trade relation with China and impede the idea of free trade, President Trump’s revolutionary approach to decision making makes it highly probable that such trade restrictions might be imposed.

We have $38 price estimate for U.S. Steel which is 4% below the market.

Have more questions about U.S. Steel? See the links below.

• U.S. Steel: The Year in Review
• OPEC’s Extension of Output Cuts Would Remain Beneficial for U.S. Steel

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