SSS XXXIII: Section 232 an opportunity, but downturn inevitable - analysts
While the Section 232 tariffs are expected to have a net positive impact on the US steel industry, the overall market environment will hit an inevitable downturn once the current bullish dynamics shift, financial industry analysts warned.
The 232 tariffs have been hugely beneficial to US producers, service centers and distributors, and have strengthened the sector by adding stability to metals prices, according to Andrew Pappas, managing director of BMO Harris Bank.
“There isn’t a metals conference that I go to where people aren’t ecstatic about what’s going on out there,” he added, addressing attendees at the Steel Success Strategies XXXIII conference in New York on Tuesday June 26.
Scrap guys, steel mills and service centers are the big three winners, Ira Kreft, senior vice president of Bank of America Merrill Lynch, agreed.
The tariffs, which were intended to curb foreign metal shipments into the United States, have succeeded in spurring interest in the US steelmaking industry - including among foreign investors.
“We’re seeing a lot of foreign buyers coming in,” Pappas said, noting that these investors have strategically targeted idled steel mills. Indeed, the 232 presents an opportunity to investors, even as trade policies and regulations under President Donald Trump remain largely unpredictable.
The steel industry might also benefit from increased mergers and acquisitions (M&A) activity.
Private equity investors have several trillion dollars of capital to invest in deals if they assume a modest amount of leverage, Peter Scott, managing partner of Headwall Partners, explained.
“The prognosis for the M&A market in the North American steel industry is strong,” Scott said. “We’re at the right point in the cycle, and capital is available to support growth.”
Still, the panelists cautioned that these good times for the market will not last.
“We’re going to see a downturn in the economy, probably within the next 24 months,” Kreft warned, adding that it could even come during the latter part of 2019.