U.S. Steel Cheers South Korea Trade Case Decision

U.S. Steel (X) has cheered the final verdict of the U.S. Department of Commerce (“DOC”) which found that intense dumping of unfairly priced Oil Country Tubular Goods (OCTG) products by South Korea and other 8 countries has caused significant harm to the U.S. market.

OCTG products, which play a pivotal role in building and maintaining the nation’s energy infrastructure, are being illegally dumped at unfairly low prices in the domestic market which happens to be the most open and attractive market in the world.

The DOC found significant unfair trade margins against most of OCTG imports from South Korea and other countries. It has levied duties on OCTG imports from these nations. South Korea exported OCTG worth $818 million to the U.S. last year, according to the DOC.

The positive decision of the DOC has allowed the OCTG trade case to move ahead to the International Trade Commission hearing on Jul 15 where U.S. Steel and others have to prove that subsidized imports from 9 countries has significantly hurt the American OCTG industry.

U.S. Steel’s shares gained 3.2% to close at $27.64 last Friday. The stock is down around 6% so far this year versus a roughly 8% gain for the S&P 500.

U.S. Steel and United Steelworkers union have been actively pressing Congress to stop unfair trade practices and enforce America’s trade laws so as to maintain the country’s economic and national security.

The prime concern against which U.S. Steel raised its voice is that an alarming inflow of imported OCTG products into the American market is hurting the company’s domestic position in the tubular market. The company has suffered heavily due to a flood of cheap steel imports, reflected by declined orders, idling of mills and jobs losses.

U.S. Steel, which has been removed from the S&P 500 effective Jul 1, remains beset by weak steel market fundamentals. The U.S. steel industry continues to contend with surging steel imports. This, in addition to the oversupply in the industry, is pressurizing prices and prospects of steel producers including U.S. Steel, AK Steel (AKS) and Nucor (NUE).

While healthy automotive demand, aggressive cost management and increased cokemaking capabilities are expected to benefit U.S. Steel, it is exposed to certain near-term operational challenges.

U.S. Steel is expected to face raw material cost pressure and delivery issues as well as maintenance outages in the near term. Moreover, bad weather-related logistic bottlenecks are expected to affect production and shipments in second-quarter 2014, leading to a loss in the company’s flat-rolled segment. U.S. Steel’s European division is also expected to see weaker results in the quarter.

U.S. Steel is a Zacks Rank #3 (Hold) stock.

Universal Stainless & Alloy Products Inc. (USAP), which also belongs to the steel industry, is worth a look with a Zacks Rank #1 (Strong Buy).