Trump Election Making Steel Great Again

Steel stocks are spiking on Monday afternoon, with AK Steel Holding Corporation AKS up almost 7.5 percent, United States Steel Corporation X up about 6.4 percent, Cliffs Natural Resources Inc CLF up more than 1 percent and Mechel PAO (ADR) MTL up 16.8 percent. The stocks are not being helped by a few analyst upgrades (although, surely not hurt by them), but seem to be mostly rallying on the back of Donald Trump’s election as president of the United States.

Morgan Stanley's Take

As Morgan Stanley analysts led by Evan L. Kurtz explained in a recent report, Trump’s plans to increase infrastructure spending and trade protection could boost demand for steel while curbing import supply, thus creating a significant undersupply not seen since the global financial crisis. In fact, the note pointed out, the president-elect’s $550 billion stimulus plan could result in a 20 percent per year (or larger) increase in steel demand over the next five years.

In this context, the firm upgraded the higher beta names, AK Steel and United States Steel, from Equal Weight to Overweight. In addition, the experts promoted Cliffs from Underweight to Equal Weight.

However, Morgan Stanley is not the only one bullish on steel stocks ahead of a Trump presidency. Since the election:

• Jefferies upgraded United States Steel from Hold to Buy, raising its price target from $17.50 to $26.00.
• Deutsche Bank also improved its rating on U.S. Steel from Hold to Buy.
• Omega Advisors disclosed a new stake in U.S. Steel, comprising 100,000 shares.

Finally, there’s Russian steelmaker and coal-miner Mechel PAO, which has gained almost 30 percent since last Wednesday, likely helped by speculation about a potentially good relation between a Trump-led America and a Putin-led Russia.

Particularly on Monday, shares were up more than 16.8 percent, apparently driven by the filing of a 6-K that highlighted the company’s participation in the 22nd International Industrial Exhibition, Metal-Expo, where it managed to reach “dozens of new agreements, [as well as] strengthen and expand long-standing partnerships.”

The Market Vectors Steel (ETF) SLX gained more than 1.3 percent on Wednesday trading.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.