March 6, 2018 / 8:27 PM / 10 months ago

GRAPHIC-U.S. steel shares crawl back from financial crisis

    By Lewis Krauskopf
    NEW YORK, March 6 (Reuters) - President Donald Trump's plans
to impose a 25 percent tariff on imported steel has shined a
light on U.S. steel companies, whose shares have outperformed
the overall market since Trump's election but as a group remain
well below levels reached before the financial crisis a decade
    The S&P 1500 steel index               has climbed more than
3 percent since Trump last week announced his plans to impose
tariffs on imported steel and aluminum to protect U.S.
producers, which set off fears of a global trade war and spooked
the broad stock market.             
    The past few days have been bumpy for steel stocks, given
uncertainty about the timing and extent of the tariffs as Trump
faces growing pressure from political and diplomatic allies as
well as U.S. companies urging him to pull back.             
    Investors are accustomed to volatility for the stocks. The
sector has climbed more than 40 percent since Trump's November
2016 election, compared with a 27 percent rise for the benchmark
S&P 500 index       , but it has taken a roller-coaster path
over that time.
    The potential for increased spending on U.S. infrastructure
under Trump fueled a rise in the shares in the aftermath of the
election. But their performance has wobbled as prospects for an
infrastructure package waned last year, along with uncertainty
over protectionist measures.  
    Much of the gains for steel stocks are due to improved
overall industry conditions, according to analysts, including
higher prices, with the global economy strengthening and China
reducing its steel production.
    “The initial rally happened because he talked about
infrastructure," said David Lipschitz, an analyst with Macquarie
Capital. “Up until the tariff talk recently, prices in the U.S.
have rallied nicely because international prices have had a nice
rally. China has taken capacity off line.”
    Despite its run, the S&P 1500 steel index remains more than
45 percent below levels reached in mid-2008, before the
financial crisis took hold, even as the broad market has marched
to record highs.
    The sector's rise in the mid-2000s came amid strength in the
U.S. economy including non-residential building as well as a
surge in construction in China, analysts said.
    "When the stocks really, really surged, there was a belief
last time that it was going to go on forever, that China was
going to continue to build and build and build," said Philip
Gibbs, an analyst at KeyBanc Capital Markets. "Their growth
rates have definitely slowed dramatically since that time
    The stocks were crushed during the global financial crisis
as commodity prices tumbled along with equity markets. Demand
for steel dropped as construction and auto markets weakened.
    Shares of Nucor Corp        , the largest company in the
13-component steel index by market value and the only steel
stock in the S&P 500, remain about 20 percent below levels
reached in mid-2008. U.S. Steel Corp      , which traded as high
as $196 a share in 2008, now trades at around $44.
    “It’s gotten better. It’s not where it was in the
mid-2000s," Lipschitz said. "We are still significantly below
from a demand perspective (for construction)."
    The steel index has performed well since Trump said in
mid-February he was considering tariffs.
    Gibbs said tariffs could provide a "sugar high" for the
stocks but that improved pricing could be short lived while
higher prices also could hurt demand from manufacturers and
could lead to more supply.
    "Investors are likely juggling the prospect for higher
near-term pricing, but with a view that it is unsustainable and
weighing against (potential) demand erosion," Gibbs said. 

 (Reporting by Lewis Krauskopf
Editing by Alden Bentley and Chizu Nomiyama)
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