Is steel a steal?

In mid-February the U.S. Commerce Department proposed a potential 24% tariff on aluminum and steel imports coming from foreign countries. Canada does have a significant exposure to steel producers via Stelco and Russel Metals. The U.S. is by far the largest customer for Canadian steel. However, the proposal is for a “surgical option,” which would supposedly exclude or reduce the impact on major U.S. allies like Canada. The fate of the industry in Canada will become more clear over the next week as news is released on the trade decisions.

Steel has done well recently. Stelco released its 2017 fourth-quarter and full-year results at the end of February and adjusted quarterly EBITDA surged 245%. For the full year, Stelco saw revenue increase 23% and adjusted EBITDA rise 145%. But will they continue to do so if US tariffs affect the stocks? We can’t say what will happen. View this confidence-eroding video of Canada’s PM speaking about Canada’s stance on the potential tariffs.

As the chart of RUS.To (above) shows us, the stock looks to be healthy. It’s in an uptrend and is retracing to an important support point near $28. That happens to be near where the 200 day SMA lies, so the stock is coming into a critical juncture. The Stelco (STLC.TO) chart has too little data to draw similar trend lines – but the shorter termed moves mimic those of RUS.

Until the impact of US policy is clear, I would stay clear of Canadian steel stocks. However, if the trade situation becomes more positive, I would be more inclined to be bullish on these otherwise healthy stock chart patterns. Of note: seasonal experts like Don Vialoux, Jon Vialoux and Brooke Thackray suggest that steel (and metals) do well into the spring normally.

Update: Brooke Thackray had some interesting comments on the steel tariffs in his newsletter.