Acerinox More Protected Than Arcelor Against The Imposition Of US Tariffs On Steel And Aluminium

Acerinox and Arcelor against US tariffs on steelAcerinox and Arcelor against US tariffs on steel

The US President has approved a discretionary imposition of tariffs on steel (25%) and aluminium (10%): he has excluded Canada, the biggest exporter to the US, and Mexico, as well as exports of goods which are scarce in the domestic market or those considered of interest to national security. The tariffs will start to be applied within 15 days.

It’s difficult to foresee how far this hardening of US foreign trade policy will go or what kind of consequences it will have for the sector companies. In principal, Renta4′ analysts believe it should be beneficial for domestic manufacturers, Arcelor and Acerinox:

Given that the price of imports, of which there is a very high level (around 25%), will be more expensive.” That said, the main exporter of steel to the US, Canada, has been excluded, so the measure will have a limited impact.

In Arcelor’s case, the impact should be mixed as it exports around 2/3 of production from its plants in Brazil (12% of the company’s total steel deliveries in 2017), a country affected by the tariffs. And part of that afore-mentioned production is destined for the US.  According to experts at Renta4, Acerinox is “more protected” since its business in the US would depend less on imports. Morgan Stanley’s economists add that 8% of exposure of Acerinox to the US is a “positive factor” which is offset by the downside risks which its exposure to exporting markets like South Africa and Malaysia provides. There are also FX pressures here.

As we the market consensus considers that the imposition of tariffs has a negative angle for trade and adds an unwanted uncertainty. Morgan Stanley don’t see a lot of potential in the stainless steel sector.

“We are at EBITDA peaks and trading with mid-cycle multiples. Furthermore, the sector already has a ROIC of 11% after tax, but we expect to see pressure on prices for imports, particularly ex-US. Whatsmore, the penetration in Europe is at highs of 30% and we are seeing substitutions.”