Trump Effect: Steel sector upgraded with 'trade triumvirate' underestimated

Credit Suisse Analyst Curt Woodworth has upgraded the firm's rating on the U.S. Steel sector to Overweight from Market Weight, saying he expects prices to recover by late third quarter amid "strong" demand trends, low inventories, and U.S. trade actions "structurally limiting import flows." Woodworth notes that U.S. Steel equities have underperformed the market significantly since peaking in February. SECTION 232: The Department of Commerce has been tasked with determining if steel imports caused harm to the economic welfare of the U.S. under Section 232 of the Trade Expansion Act of 1962. Woodworth said the Section 232 outcome will have "significant" impacts on domestic steel stocks and he believes the Department of Commerce will find a correlation between the health of the U.S. steel industry and national security, allowing Trump to implement additional layers of trade support for the industry by imposing quotas or raising tariffs. CHANGE IN EXPORT BEHAVIOR: Woodworth said the market is underestimating the structural change in the mechanics of foreign producers' export behaviors citing President Trump's numerous executive orders and memorandum to expedite Section 232. The analyst particularly calls out Trump's "proactive steel trade triumvirate" of Secretary of Commerce Wilbur Ross, Director of Trade and Industrial Policy Peter Navarro, and Trade Representative Robert Lighthizer. He added the DoC's last minute decision to invoke the Particular Market Situation rule in the Korea OCTG final ruling highlights the forceful tactics of the trade cabinet and said he expects Trump's orders to more aggressively enforce current trade laws. STOCK UPGRADES: Woodworth upgraded Nucor (NUE), U.S. Steel (X) and Steel Dynamics (STLD) to Outperform and raised his price targets to $68 from $56, to $29 from $25, and to $43 from $36, respectively. PRICE ACTION: Near noon, Nucor rose 0.2% to $58.76, U.S. Steel rose 2% to $20.80, and Steel Dynamics fell 0.2% to $35.20. "Trump Effect" is The Fly's recurring series of exclusive stories that highlight stocks that are being impacted, or are predicted to be impacted, by the comments, actions and policies of President Trump and his administration.