Proprietary Data Insights
Financial Pros Top Steel Stocks This Month
Canada Is Mad
Despite the passage of the USMCA, electric vehicle credits in the proposed Build Back Better legislation have angered Canada.
The northern neighbor formally threatened the US with retaliatory tariffs should the US keep the electric vehicle credit in the legislation. Potential targets include dairy farmers, a sore subject between the two countries.
Although most of us didn’t know, the Commerce Department announced it was taking steps to boost tariffs on Canadian softwood lumber in May. The doubling of the rates went into effect on November 24.
This comes as home prices continue to climb on skyrocketing lumber and material prices.
However, the fight goes back decades and involves stumpage fees and clean energy subsidies the Canadian government provides companies such as state-operated utilities, which pass the savings along to mills in their territories.
It’s interesting timing considering the US aims to reduce steel and aluminum tariffs from the EU and Japan.
Steel Prices Soar While Tariffs Remain
With inflation showing no signs of easing, the Biden administration is working feverishly to find ways to ease pricing pressure.
Target #1 – Tariffs
Steel Tariffs Remain
The Trump administration levied tariffs on many countries for hundreds of products, steel among them.
In March 2018, Commerce Secretary Wilbur Ross recommended invoking section 232 of the 1962 Trade Expansion Act. Initially, the actions aimed to curb Chinese commodity dumping.
However, the U.S. expanded them to NATO countries and other allies including Japan. Many of those countries retaliated with levies on everything from Bourbon to Harley Davidson motorcycles.
The moves were cheered by the United Steelworkers Union. However, companies making refined aluminum products weren’t too thrilled as they lost access to cheap imports from Canada and other countries.
Interestingly, both steel and aluminum production fell as did prices.
The current administration struck a deal with the EU to lift tariffs hoping to alleviate current pricing pressure.
Trade representatives also reached out to Japan to work out a similar pathway forward.
In an ironic twist, the U.K. can’t make headway with the Biden administration to see tariffs removed on them. No longer part of the EU, the U.K. can’t wield the same leverage it once did.
Will They Work?
In theory, yes.
All our data suggests supply shortages are the primary driver of inflation.
Increasing steel imports, especially when they don’t need to go through the Port of L.A. would be a win over the next several months.
The Bottom Line: Tariff changes with the EU go into effect January 1, 2022.
That should flow through to construction companies in the 1st half of the year into PPI and eventually CPI towards the summer of next year.
This could put pressure on steel stocks such as US Steel (X), Nucor (NUE), and the like while benefiting homebuilders (XHB) industrials like Caterpillar (CAT).
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