Steel Expert: Wilbur Ross Comments Give Investors Unfounded Hope

President-elect Donald Trump proved he can move the market with a word, and on Wednesday, his appointed cabinet member demonstrated a similar power.

During his confirmation hearing before Congress, Wilbur Ross, the nominee for U.S. Commerce Secretary, remarked on the steel industry — and saw concurrent shifts in relevant stocks.

In two separate comments, Ross identified overcapacity, particularly in China, as the industry’s primary problem, and he said tariffs may be required to stop steel and aluminum dumping.

United States Steel Corporation X shot up 4.1 percent, Steel Dynamics, Inc. STLD rose 3.3 percent and Nucor Corporation NUE bounced 2.6 percent.

But some in the industry claimed the market reactions were unfounded.

Experts Assert Trade Tariffs Will Change Little

In response to Ross’s comments, Axiom analyst Gordon Johnson told Benzinga that more restrictions on steel trade would have negligible impact on the industry given the many pre-existing restrictions on trade with China.

“While there is a strong view that President-Elect Trump’s ‘getting hard on China’ stance will be a huge positive for the steel industry, based on the numbers, we would argue that this was accomplished during Obama’s two-term presidency,” said Johnson.

Johnson, who has been negative on steel since early 2016, noted that steel imports from China plunged 63.4 percent over 2016. He expressed surprise that Ross and others in the market are now discussing the issue because it has long been a point of his concern.

“We do not believe this dynamic is well understood by the lion’s share of market prognosticators at present,” he wrote. “To wit, unless more tariffs on Chinese imports are going to drive them into negative territory (at risk of stating the obvious, this is impossible), we see the market’s reaction today as misplaced.”