China Imposed Tariffs On U.S Steel Producers Leaves China Steel Companies Looking Sexy

Frictions between the United States and China continue to escalate in what looks to be an inevitable all out trade war. Over the past year or so, China has continually signaled their displeasure with the US and their weak dollar policy. China holds trillions of US dollars and has hinted that it may look to dump dollars on the open market causing the probable collapse of the dollar if the US government continues to weaken their currency.

The latest saga is in regards to continued disputes over trade. China is threatening to tack as much as 25% tariffs on imported steel from US and Russian producers. This is a result of Washington having imposed anti-dumping duties of up to 100% on Chinese-made imports of steel pipe for use in the oil and gas industry. This occurred after allegations by U.S. Steel Corp. (NYSE: X) and other producers that the products are being dumped at unfair prices. Other US companies affected by the tariffs would be AK Steel Holding Corp. (NYSE: AKS).

While these new tariffs of up to 25% may hurt US steel producers, they very likely will be a great benefit to Chinese steel producers. Demand should increase sharply and stock price appreciation is likely.

In addition to an increase of demand for China steel companies based on these tariffs, analysts have also increased the expected demand for steel in China for 2010. Just this morning, news out of China on industrial output on a monthly basis showed a powerful increase of 19.2% from just one year ago. This no doubt will keep pressure on China buying steel and iron ore.

The combination of these factors will likely cause a run of hedge funds and money managers into stocks like China Precision Steel, Inc. (NasdaqCM: CPSL) and Sutor Technology Group Limited (NasdaqCM: SUTR). These both sit at the lows of their charts and look extremely attractive based on current stock and commodity valuations. Most commodity stocks have doubled if not tripled, note U.S. Steel Corp. (NYSE: X) and AK Steel Holding Corp. (NYSE: AKS). These tariffs and analysts signals will likely lead to a run on these stocks and as much as 25% increase in share price near term.

Gareth Soloway
Chief Market Strategist
InTheMoneyStocks.com