After failing to secure the replacement of so-called Obama care Donald Trump is now desperate for an easy win to placate his supporters. While he has huffed and he has puffed, Pres Trump has so far failed to deliver any major new policies and investors are showing signs of impatience. For months now the markets have relied upon hope value as a means of continuing the bull rally with Donald Trump promising to improve economic growth, cut red tape and support the US employment market. So, are steel tariffs really Donald Trump’s only short-term path?
Chinese steelmakers dump stock on US
The price of steel has been very volatile over the last few years with Chinese steelmakers circumventing existing import limits to beat the system. It now looks as though Donald Trump will possibly introduce quotas or tariffs or both. Historically the steel industry has been labour intensive and this will play into the hands of his supporters and hopefully improve his rating amongst the general public. It seems fairly obvious that he will portray himself as the champion of the US business market and protector of US jobs.
Why the delay?
At this moment in time the US government is undertaking a review of the impact of potential quotas and/or tariffs. It is also worth noting that the president of the USA is able to change steel import policies through executive orders rather than having to obtain the support of Congress. So, in theory Donald Trump could introduce a new executive order tomorrow which would introduce steel tariffs literally overnight.
Therefore, it is a little surprising that it is taking Donald Trump so long to come up with a solution to the steel issue. Is he concerned about Chinese/US trade relations? Has he lost his bottle with regards to the introduction of tariffs? Is there resistance to his moves behind-the-scenes?
Steel companies
If we look at the four leading steel companies in the USA, Nucor, US Steel, AK Steel and Steel Dynamics, you will see that Steel Dynamics and Nucor share prices are slightly up on the year while US Steel is down around 25% and AK Steel has fallen by around 35%. Since the start of the year the steel price has fluctuated from $580 per tonne up to $660 and now currently stands at $615. These may not seem like massive fluctuations compared to volatile share prices but they do have a major impact on forward planning for steel companies.
Only a couple of weeks ago we saw major interest in AK Steel when rumours of the impending steel tariffs began to circulate. There was significant option interest as well as genuine buying although the shares are currently marking time ahead of an expected announcement very soon.
Investors want success
As we touched on above, investors have been trading on hope value for far too long and slowly but surely the tide is beginning to turn. Investors are now questioning the continuous rise in prices and valuations against what is actually happening in the political arena. Could the introduction of steel tariffs give renewed impetus to the current bull market? Will Donald Trump be seen as a busted flush unable to push through his preferred policies?