On Monday October 15th, 2018, Credit Suisse downgraded the rating of the entire US steel sector. How come? what’s going on?
Some of the reasons shared by the company:
- Expected steel prices to fall.
- Excess steel supply in the American market.
- Consequences to impose tariffs on Chinese imports.
- Steel production in this country have reached maximums of several years.
- American economy still strong but not forever.
Combination of those factors moved the credit agency to reduce its rating from “overweight” (recommendation to be included in a investment portfolio believing that will perform better in the future) to a simple “market price” (keep the investment in the portfolio without expect fancy improvements).
Credit Suisse also downgraded the companies: Steel Dynamics, Nucor Corp., and Cleveland Cliffs from positive to “neutral”. We can read this as a mild warning for the steel sector. When a rating agency devalues a whole sector, it is a dose of reality. Why?
Section 232 tariffs to Chinese imports are not working
Take a look at this chart:
We have today USA applying safeguard measures. Even with that, China’s trade surplus with the US hits a new record. In other words, all suppliers try to get ahead of the tariffs with any mean. This chart includes all trade between both countries (and the steel on it)
Today, Steel prices are not rising.
Metal prices are fluctuating all the time. But steel prices are showing a clear flat trend in 2018.
That is because steel prices in the US have decreased sharply perhaps due historical steel price cyclicality. In the chart we can see steel prices have remained in a sharp uptrend since January 2018. But prices have started to come down slightly, anyway remain higher than last year’s average.
Meanwhile in Canada
Last week, Canada said it would impose new quotas and tariffs on imports in seven steel categories, in order to avoid a drastic drop in prices. This is a protection to avoid temptations of coming offers from oversupplied third countries seeking new customers.
In the photo we see Canadian flags in front of steel coils. The application of tariff measures by the United States has made the protection of the iron and steel industry, unfortunately, a matter of state in many countries.
Sales Manager @Conecband Steel
Published in Spanish language on the Conecband’s blog. Courtesy of the Author.
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