Once again it is hard to miss how little steel is imported to the US directly from China. However, steel can often pass through intermediate countries several times as it is made, forged and sold in different countries, much like other products such as cars. And China is the largest source of global indirect steel exports, while the US tops the list for the most indirect imports.
Trade tariffs: steelmakers and mining stocks
Below are some steel making and mining stocks that will be impacted by the tariffs. Steel is one of the most crucial metals used around the world. Its use in construction, energy and transport means that it is heavily linked to global growth and is a core ingredient of national government policies on matters like infrastructure and industry. Rapidly growing countries like China have therefore been integral to steel markets by providing growing demand for steel, and the introduction of Trump’s huge infrastructure investment plan will be a boon for steelmakers if and when it starts to be rolled out.
Read more about what metals are needed for electric vehicles and battery storage
Importantly, steel is not taken directly from the ground by miners like gold or copper. It is an alloy that is based primarily on iron. Mining companies extract iron ore and must reduce these ores using carbon to turn iron into steel. About three-quarters of all steel is made by mixing the iron ore with carbon from metallurgical coal (also known as coking coal) with the rest made using an electric arc furnace, which does not use either of the two primary raw materials but instead recycles scrap steel and other types of iron.
It is important to remember that although coal widely used to create steel, metallurgical coal is not the same as thermal coal, which is the coal used to produce energy. However, electric arc furnaces are extremely energy-intensive and require a lot of electricity and many are often powered by plants that are fed thermal coal.
Learn more about our guide to the lifecycle of a mine and mining commodities
Nucor: the largest and most diversified steelmaker in the US
Nucor is the biggest steel company in the US and one of the biggest in North America. The firm produces carbon steel, fasteners, alloy steel, and finished steel products as well as raw materials which are used for/in heavy equipment, automobiles, energy generation, oil and gas, transportation, and construction.
The company leverages the niche diversity of its product portfolio by focusing on supplying domestic customers, mostly manufacturers and industrial firms. It does, however, have joint ventures in countries like Italy and Mexico, and an international sales operation. It has already been investing in the US in preparation for the domestic growth it expects, spurred on by the tariffs. Earlier this year it announced plans to construct a $240 million rebar steel mill in Florida.
US Steel: idle capacity firing up in response to steel tariffs
US Steel focuses on producing high quality, value-added sheet and tubular steel products for a range of industries, supplying customers throughout the world primarily in the automotive, consumer, industrial and oil country tubular goods (OCTG) markets. Although the bulk of its operations are in the US, where it has the capacity to produce 17 million tonnes of steel per year, it also has 5 million tonnes of capacity at its integrated steel plant and coke production facilities in Slovakia.
The company has been forced to shut down some of its operations over the years as they became unprofitable due to global oversupply, but this means it has idle capacity it can fire up as the market improves. US Steel said it would restart the B blast furnace and steelmaking plants at its Granite City Works facility, in direct response to the trade tariffs on steel being announced, as it looks to capitalise on anticipated increases in domestic demand.
ArcelorMittal: the world’s largest steelmaker with a big US presence
ArcelorMittal is a world behemoth. It has steelmaking operations in 19 countries and is the largest steel producer in both North and South America, as well as Africa and the European Union, where it has sites in France, Germany, Belgium, Spain, Luxembourg, Poland, the Czech Republic and Romania. The firm is integrated with large iron ore and coking coal operations in countries like Brazil, Bosnia, Canada, Kazakhstan, Liberia, Mexico, Ukraine, and the US.
In 2017, around 37% of its crude steel was produced in the Americas, 46% in Europe and 16% in other countries. For perspective regarding its sales, the US accounted for around 21% of total revenue last year versus Europe at 50%.
The company has swathes of excess steelmaking capacity, and has been reducing this for several years. It is currently working toward the Action 2020 plan, where it aims to improve earnings by $3 billion by 2020 by growing volumes, improving its product mix and saving costs. Two years into the five year plan, ArcelorMittal has already delivered more than half of its target.
AK Steel: unique steel manufacturer in North America
AK Steel prides itself on being the only steel manufacturer to produce carbon, stainless and electrical steels, although it also offers other products and services like mechanical tubing and steel stamping.
Although it has a sales presence across Europe, sales to customers outside of the US have fallen for at least three consecutive years, generating $627.1 million in revenue in 2017 compared to the $5.45 billion made in the US. The automotive industry is by far the most important sector to the company, taking nearly two-thirds of the production, with the rest being used in either distributors, converters, or infrastructure and manufacturing.
The company claims that cheap foreign imports have threatened the electrical steel segment more so than any other type of steel, with electrical steel imports into the US ‘nearly doubling’ in 2017. Quite simply, AK Steel believes there is a reason why it is the only domestic manufacturer of electrical steel and electrical transformers left, following the exit of the only other producer in 2016.
In addition to its steelmaking facilities the company also has a subsidiary that is developing metallurgical coal reserves in Pennsylvania, in what would be the first step to becoming a more integrated firm.
Steel Dynamics: supportive of tariffs but more cautious over long-term implications
Steel Dynamics is a formidable producer and recycler of steel in the US, with additional operations south of the border in Mexico. In terms of product, over 60% of its production comprises of flat roll products. Regarding revenue, steelmaking is at the core, accounting for around three-quarters of it and supplemented with a substantial metal recycling operation.
Although it is positive following the introduction of Trump’s trade tariffs, its view on the effectiveness of previous tariffs (aimed at individual countries) should still hold true today.
‘When such tariffs, duties or quotas expire or if others are further relaxed or repealed, or if relatively higher United States steel prices make it attractive for foreign steelmakers to export their steel products to the United States, despite the presence of duties, tariffs or quotas, the resurgence of substantial imports of foreign steel could create downward pressure on United States steel prices,’ the company said in its 2017 annual report before the latest tariffs were announced.
Still, Steel Dynamics is willing to expand into the right areas, having recently announced plans to buy CSN Heartland’s flat roll operations, broadening its flat roll product portfolio with lighter gauges and greater width for north of $340 million.
Commercial Metals Co: focusing on steel manufacturing
CMC has a slew of steelmaking operations in the US and a strong European presence through its recycling, manufacturing and fabrication plants in Poland. The company has all but exited from its international marketing and distribution business, building on the sell-off of its raw materials unit in August 2017.
But it is clearly willing to invest in its manufacturing business after striking a deal in January to buy a US-based rebar mill and fabrication facilities from Gerdau for $600 million, and having launched commercial production at a new micro-mill in Oklahoma last December. The company believes that focusing on rebar and merchant bars separates it from rivals.
In 2017, CMC generated 71% of its net sales in the US, followed by Europe (15%), Asia (9%), and the balance sold in Australia, New Zealand and elsewhere.
Alcoa: bauxite, alumina and aluminium
Alcoa is a significant player in the bauxite space, with seven active mines spread worldwide, including four that it operates itself in Australia, Brazil, Guinea and Saudi Arabia. The US is its biggest market, accounting for about 46% of revenue, followed by Europe (Spain) at 28% and Australia at 20%.
Following its much improved performance in the first quarter (Q1) of 2018, Alcoa said it expected annual adjusted earnings to be $900 million higher than previously anticipated. It is projecting a global deficit for both aluminium and alumina this year, with bauxite supply and demand to remain balanced. With aluminium ‘steadfastly positioned to perform through commodity cycles’, Alcoa believes it will be able to drive better commodity prices to its bottom-line as a way to outperform its rivals.
Russel Metals: the North American steel distributor
Russel Metals distributes steel products across the entirety of Canada and the Southeastern and Midwestern regions in the US, sourcing the majority of its material from within North America. Sales are weighted to Canada, where it generates 70% of sales versus 30% from the US.
The company said it believed the tariffs would help margins for its main businesses, and the company has just acquired two US processing facilities from DuBose Steel.
Evraz: self-sufficient integrated steelmaker
Evraz is another sizeable steelmaker based in Russia, with additional operations in the US, Canada, the Czech Republic, Italy and Kazakhstan. It is almost completely self-sufficient in terms of raw materials through its own iron ore and coking coal operations. In addition, Evraz (31% of which is owned by Roman Ambramovich) is one of the world’s leading producers of vanadium, a key additive for steel.
Thyssenkrupp: rising export risks but sees growth opportunities
ThyssenKrupp has a swathe of technology and material businesses, with steel being the single biggest driver of revenue. In May, the company warned that its European steel arm was battling in an ‘extremely challenging’ environment because of both global overcapacity and ‘increasing export risks’ due to the trade tariffs.
Releasing its interim results, ThyssenKrupp said it was increasing sales from its processing business, offering warehousing and other services, adding there was ‘clear gains in materials warehousing and distribution in large parts of Europe and North America, and in international direct-to-customer business’.
Tenaris: providing pipes to the energy and industrial sectors
Tenaris predominantly supplies steel pipe and other products directly to the oil and gas industry, and to engineers that build projects, pipelines, processing and power plants on behalf of other firms. The company’s global presence has been built up through strategic investments over recent decades. Tenaris has steelmaking and other related facilities spread across 16 countries, supported by service and distribution arms in 25 countries.
The majority of its manufacturing sites are based in the Americas, with centres in Argentina, Brazil, Ecuador, Colombia, Mexico, the US and Canada. In Europe it has manufacturing sites in Scotland, Italy, Denmark and Romania. Other manufacturing plants are located in Nigeria, Saudi Arabia, Kazakhstan, Japan, Indonesia and China.
In its 2017 annual report Tenaris said the impact of the trade tariffs could lead to a ‘structural change’ in its most dynamic market, but said they are likely to be positive if they are successful at reducing imports into the US because of its large amount of US capacity.
Acerinox: stainless steel manufacturer with record earnings
Acerinox’s steel operations are more diversified in terms of location. Its US operations are centred in Kentucky, while its European plants are in Spain, with further distribution sites within the EU. It also manufactures stainless steel in South Africa and Malaysia.
While its performance in Q1 of 2018 was positive, the firm did admit that some material originally destined for the US had already been diverted and applied pressure on other markets in Europe and Asia. It opened a new factory in the US last October that is performing well, while in Europe it is tinkering with its operations to enable it to make better quality products, mainly through investing in new equipment.
Outokumpu: aiming to be the 'best value creator' of stainless steel
Outokumpu production is based in Finland, Germany, Sweden, and the UK, with additional sites across the pond in the US and Mexico and despite being a European company, it believes the biggest growth opportunities lie in the Americas. It also has a chrome mine in its home country of Finland which feeds its stainless steel operation.
In the US, Outokumpu claims to be a large player, with 20% of the US market and 21% of the market in NAFTA (US, Canada and Mexico). Still, Europe is by far its biggest market, accounting for two-thirds of total sales last year, with the Americas representing only 24%.
Rio Tinto, BHP Billiton and Anglo American
Rio Tinto, BHP Billiton and Anglo American are three of the world’s largest producers of the core ingredients needed for steel.
Rio Tinto owns the largest integrated iron ore operation in the world, based in the Pilbara region of Australia where it feeds China and other emerging markets, helping circumnavigate the US market. However, its array of aluminium smelters are more spread out, located in Canada, France, Australia, New Zealand, Iceland and Oman.
BHP Billiton also has an integrated iron ore operation in the Pilbara region of Australia, creating high grade hematite lump and fines products, complimented by its joint ventures with Mitsubishi Development and Mitsui & Co on some of the largest coking coal operations in the country.
Meanwhile, the location of Anglo American’s operations differ. It is the third largest exporter of metallurgical coal in the world, operating in Australia, Colombia and South Africa. Its iron ore mines are in South Africa and Brazil, the latter of which is also home to its nickel projects which predominantly feeds the stainless steel industry.
Meanwhile, investors can also look at smaller firms like Ferrexpo, a producer of iron ore pellets in Ukraine, that has an ideal base to feed both Europe and Asia. It sells all of its products out of sale sites in Baar, Dubai, Kyiv, Singapore, Shanghai & Tokyo. The miner plans to raise production to 20 million tonnes over the coming years from the current capacity of just over 11 million tonnes, dependent on cash flow.
Vale and Fortescue Metals
Vale produces more iron ore and nickel than any other company. Its steelmaking and iron ore operations are based in its home country of Brazil, where it has become the go-to partner for other firms that have entered the country, demonstrated by its joint ventures with firms like ThyssenKrupp. It also has nickel operations in Brazil, as well as Canada, Indonesia and New Caledonia. In Asia, it has interests in refineries in the likes of China, South Korea, Japan (and also the UK).
Despite being based on the same continent as the US, Vale only generates a tiny proportion of sales from exporting its products there – accounting for just 6% in Q1 of this year. About 58% of sales are made in Asia (mainly China and Japan), and more steel is sold to Europe (17%) than in Brazil (10%), implying strong demand for Vale’s steel in foreign markets compared to domestic.
Notably, Vale and BHP are both partners of the sizeable Samarco iron ore operation in Brazil, which is still closed following a fatal dam failure in 2015.
Fortescue Metals is focused on iron ore and also operates in the renowned Pilbara region of Australia, shipping its product to China. The company accounts for about 17% of all the seaborne iron ore shipped into China each year. Like its peers, the amount of emerging markets surrounding Australia (which continues to deliver reliable economic growth), such as India, Thailand, Vietnam and Indonesia means that there is no urgency to supply the US.
Although based in Australia, the miner is looking for more iron ore as well as other metals such as lithium, copper and gold overseas in Ecuador, Columbia and Argentina, which would diversify its geographical presence and product portfolio.
