Tariffic or Terrible: Steel Import Tariffs and the U.S.

Shares of AK Steel (AKS) and U.S. Steel (X) are heading higher on Wednesday, after the U.S. announced it will impose steep import duties on steel from Vietnam that originated in China.

The U.S. Commerce Department found that the Vietnamese steel from China was undermining anti-dumping and anti-subsidy orders; U.S. steelmakers won duties against Chinese steelmakers in the past two years, but imports continued to flood the U.S.

While it sounds like a victory at first blush, and the market seems to think so, Axiom Capital's Gordon Johnson warns that investors shouldn't get too excited. He writes that imports of cold rolled coil and hot-dip galvanizing steel, which together account for $12.4 million in revenue to Vietnamese steel mills each year, have "virtually collapsed" since November of last year.

Moreover, hew rites that Vietnam suppliers are steadfast in claiming that their product doesn't include Chinese components, and U.S. importers have continued to buy their steel, meaning that he expects about half of the current imported Vietnamese steel gets banned incrementally:

That would represent just under $7mn, annually, in revenue opportunity for Steel Dynamics, AK Steel Corporation, ArcelorMittal, Nucor, and US Steel as a result of the US Commerce Department’s countervailing duties (we have excluded California Steel Industries as they are not publicly traded). However, when considering the combined LTM revenue for these 5 steel mills is $56.1bn, the decision by the US Commerce Department last night is virtually irrelevant in terms of supply/demand.

AK Steel and U.S. Steel were up 4.5% and 7.2%, respectively at recent check. Other companies include Nucor (NUE) and Steel Dynamics (STLD) are seeing smaller gains as well.