U.S. President Donald Trump lashed out at Turkey on Friday, doubling import tariffs on steel and aluminum in protest of the detention of American pastor Andrew Brunson. Trump’s decision tanked the Turkish lira and disrupted equity markets around the world, but analysts say it’s more good news for United States Steel Corporation (NYSE: X) stock.
Trump tweeted that he intends to double Turkish steel and aluminum import tariffs, making the new tariff rates 50 percent and 20 percent, respectively. According to Bank of America analyst Timna Tanners, the new steel tariff will make the cost of Turkey’s steel prohibitively high for U.S. buyers.
“We believe Turkish steel imports will be priced out of the market,” Tanners says.
[See: 16 Questions That Scare Investors, But Shouldn’t.]
Prior to the new tariffs, Bank of America had expected recent weakness in the lira to increase Turkish steel imports to the U.S. Now, the math simply doesn’t add up. Turkish rebar export prices of $480 per sheet are currently well below domestic U.S. prices of between $685 and $710/st. However, after adjusting for the new tariff rate and factoring in freight costs, Tanners estimates the new price for imported Turkish rebar will be about $770/st.
Overpriced Turkish supply is good news for U.S. Steel and other domestic suppliers. But Tanners says supply from other countries could offset much of the potential benefits of the new tariff rates.
“A new 50 percent tariff on Turkish imports to the U.S. is positive, yet we still hear of greater supply offered of late from Italy, Spain, and other sources,” she says.
CFRA analyst Matthew Miller says total steel imports to the U.S. will continue to decline throughout 2018 as a result of Trump’s tariffs, and U.S. Steel stock is looking like quite a bargain for long-term investors at its current price.
[See: 7 Ways to Shelter from a Trade War.]
“We think the progress being made by U.S. Steel is an under-appreciated story given X is trading at a forward [enterprise multiple] of 3.6, a 36 percent discount to peers, despite its stronger-than-peers balance sheet and earnings growth,” Miller says.
Bank of America has a “buy” rating and $49 price target for U.S. Steel. CFRA has a “strong buy” rating and $50 target for X stock.
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Tariffs on Turkey Help U.S. Steel Stock originally appeared on usnews.com
