President Donald Trump’s tariffs on foreign steel have sped the decline of some of the U.S. mills he vowed to help.
This story by Matthew Townsend and Joe Deaux originally appeared in Bloomberg.
Exuberance over the levies dramatically boosted U.S. output just as the global economy was cooling, undercutting demand. That dropped prices, creating a stark divide between companies like Nucor Corp., which use cheaper-to-run electric-arc furnaces to recycle scrap into steel products, and those including U.S. Steel Corp. with more costly legacy blast furnaces.
Since Trump announced the tariffs 16 months ago, U.S. Steel has lost almost 70 percent of its market value, or $5.6 billion, and idled two American furnaces in mid-June that couldn’t be run profitably at the lowest prices since 2016. Meanwhile, Nucor, down around 20 percent, has touted $2.5 billion in expansion projects.
With the stronger steelmakers aggressively boosting capacity to grab market share, a dip in demand has left older, more costly blast furnaces at U.S. Steel and AK Steel Holding Corp. struggling to compete, even with foreign steel nudged out of the equation.
“Be careful what you wish for,” said Timna Tanners, an analyst at Bank of America who has dubbed the industry’s push to add capacity without enough demand “Steelmageddon.” She called it “ironic” that the tariffs are “punishing some steel companies.”
A spokeswoman at U.S. Steel declined to comment while AK Steel said its products have little overlap with EAFs, and that the additional capacity will further pressure imports.
As expected, the tariffs reduced steel imports, creating more demand in 2018 and boosting profits. With that cash in hand, added money from Trump’s corporate tax cut and confidence that protectionism is here to stay, domestic producers began adding more capacity than they would have otherwise.