Trump’s tariffs could cause US Steel’s profit to double

Workers arrange steel rims for export at a wheel factory in Lianyungang, Jiangsu province, China.

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Workers arrange steel rims for export at a wheel factory in Lianyungang, Jiangsu province, China.
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Reuters/China Daily CDIC

  • President Donald Trump says he will introduce a 25% tariff on imported steel next week.
  • US Steel shares are up more than 6% on the news.
  • Cowen and Company analyst Novid Rassouli told Business Insider the company’s profit could double.
  • But, there are some caveats.

Steel tariffs are coming and they could give US Steel a big profit boost. Shares of the steel company are spiking Thursday, up more than 6%, after President Donald Trump said he will announce tariffs on steel and aluminum next week.

“We’re going to build our steel industry back, we’re going to build our aluminum industry back,” Trump said.

The president said the tariffs, which are taxes on imports, will be 25% for steel and 10% for aluminum, and help bolster the US metal industries.

“We’ll be signing it next week. And you’ll have protection for a long time in a while,” Trump told the gathered executives. “You’ll have to regrow your industries, that’s all I’m asking.”

The tariffs could make US Steel’s profits “laughably high,” Cowen and Company analyst Novid Rassouli told Business Insider. If steel prices increase 25%, which Rassouli said is a distinct possibility, the company’s earnings before interest, tax, depreciation and amortization (EBITDA) “would be over double what it is right now,” he added. That would mean an extra $1 billion worth of EBITDA.

Of course, that’s only taking into account a price increase. If the price increase causes demand to fall, then the amount of steel sold by the company would decrease, so the increase in EBITDA would not be as high as $1 billion, Rassouli said. “You have to wait and see what the impact is,” Rassouli said, adding that investors have to know how many tons of steel the company can sell. “Is it 10 million tons? Is it 15 million tons. Is it 20 million tons?” Rassouli asked.

Plus, importers may shrug off the tariff, which can happen in international trade. “Maybe imports don’t go down as much,” he added. “It really depends on how much share they’re able to regain.”

US Steel

source
Markets Insider