Stressed Out: 3 Steelmakers Staging Huge Turnaround on Price Rebound, Tariffs

 | Mar 04, 2016 | 12:21 PM EST
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Stock quotes in this article:

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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list. The article was updated at 3:05 p.m. ET Friday to reflect commentary on the Department of Commerce's recent Chinese tariff imposition and 12-month trading charts.

The big U.S. steelmakers, which made enormous strides in February, appear to be in for an even stronger month of substantial big gains.

Pittsburgh-based U.S. Steel (X), whose shares jumped more than 30% last month, are trading up more than 48% so far in March, largely driven by a recovery in commodity prices. Meanwhile,  AK Steel (AKS, second chart below) and TimkenSteel (TMST, third chart below) are up 38% and 30%, respectively, for the month.

The big gains are largely backed by the Department of Commerce's announcement Tuesday that it would impose a 266% tariff on Chinese imports, whose historically cheaper prices have been adding to financial pressures on their U.S. counterparts.

Donald Trump, front-runner for the Republican presidential nomination, has long supported the option of using tariffs on Chinese goods, a country he maintains has been an unfair trading partner.

 "We have very unfair trade with China. We are going to have a trade deficit of $505 billion this year with China. A lot of that is because they devalue their currency," Trump said at a January debate hosted by Fox Business. "*I would certainly start taxing goods that come in from China."

All three U.S. steelmakers mentioned above are members of Real Money's "Stressed Out" watch list, based on their hefty debt loads, and a year of stagnant earnings. Steelmakers in general have long been struggling in the face of low metal prices, cheaper imports and reduced demand from oil and gas customers -- forcing many to idle their mills.

U.S. Steel's (see first chart below) hefty $3.1 billion debt burden, for instance, has hardly budged since 2014, while its assets have fallen sharply over the period: $9.2 billion in total assets for 2015 is down 23% over the period. Sales have also fallen signficantly over the two years, with last year's $11.6 billion down 34% from 2014.

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But a recent resurgence in the prices of both oil and steel could be putting the giants on a sustainable growth track. Oil prices rose another 1.4% in midday trading Friday to $35.09 a barrel, based on U.S. benchmark West Texas Intermediate, and are up 4% so far this month.

Meanwhile, the average price of U.S. imports of cold-rolled coil are ticked up 6%, to $475 a ton on Friday, based on Bloomberg spot-market pricing data. And prices are up 13% since early February. 

This may translate into better-than-expected quarterly performance, as U.S. Steel CEO Mario Longhi failed to predict such a favorable tubular and oil market rebound at the company's January earnings call with analysts.

"In the energy markets, low oil prices and rig counts remain a significant headwind," he said. "At this time, we do not see any catalysts other than increasing oil prices that would drive significant improvement in tubular demand and pricing with impacts to both our tubular and flat-rolled segments."

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Sprint Is Collapsing Under the Weight of Its High-Yield Debt

Stressed Out: 3-D Printing and Semiconductors Are Getting Slammed

Stressed Out: Why the Big Steelmakers Are Tanking Today

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