U.S. steel stocks rose dramatically after Donald Trump was elected president of the U.S. The run-up was based on Trump’s proposed US$1-trillion infrastructure program, which would use only U.S.-produced materials.

In theory, this means U.S. steel companies should see increased market share. Certainly Diana Racanelli, senior portfolio manager on the global natural resources equity team at Manulife Asset Management Ltd. in Toronto, believes they will benefit. She favours Charlotte N.C.-based Nucor Corp., as does David Coleman, analyst at Argus Research Co. in New York, whose recent report had a “buy” on the stock.

However, Suzanne Bateman, research analyst at Templeton Global Equity Group, part of Franklin Templeton Investments Corp. in Edinburgh, and Amit Dugar, senior vice president and portfolio manager at Fiera Capital Inc. in Dayton Ohio, aren’t convinced that U.S. companies will see a significant boost in revenue growth. There are a number of reasons.

First, an infrastructure program may not be implemented nor is the size of the program known. There are Republicans who are against big increases in government spending.

Second, there’s the question of whether projects will be upgrades of existing infrastructure or new projects. “New projects would need significant amounts of steel, but upgrades wouldn’t require a lot,” says Bateman.

Third, additional steel demand may not result in a big jump in U.S. production. Trump is talking about a strict “Buy America” program for the proposed infrastructure program. But, Dugar says, U.S. producers may choose to supply the infrastructure program without increasing production thus allowing imports to fill any residual demand.

There’s a lot of excess capacity globally, says Bateman. A good deal of that is in China, which has been closing plants. But there’s also underutilized capacity elsewhere. Most countries seem to want their own steel production.

U.S. steel firms are operating at 70%-75% of capacity, but that doesn’t mean the unused capacity can be simply turned on. Bateman says some companies, particularly those operating electric arc furnaces (such as Nucor), can “more easily” increase production. But neither she nor Dugar believes the considerable investment needed for most companies to increase production significantly will be forthcoming.

Most steel customers are in industries subject to big swings in demand, such as autos, energy and construction of all kinds. The steel companies have been burned in the past when ramping up production and then finding that demand has weakened. Dugar believes most steel firms that are making money will be happy to stick to their current production levels.

Bateman agrees: “I’d be quite surprised if companies decide to increase capacity significantly. It would be expensive and take several years to complete mills that are expected to run 40 years with proper maintenance. There’s no guarantee that the next U.S. administration will be as protectionist or want to spend a lot on infrastructure.”

As a result, neither Bateman nor Dugar favours steel stocks. Bateman says current valuations are pricing in an optimistic scenario for U.S. steel demand. Dugar notes that estimates for steel companies’ earnings per share for the current fiscal year “are being slightly reduced.”

There are three big producers of steel in the U.S. Luxembourg-based ArcelorMittal SA’s works in Bethlehem, Penn., Nucor and U.S. Steel Corp. in Pittsburgh. Together they accounted for about 70% of North America steel production in 2015, according to the American Iron and Steel Institute.

Here’s more on these firms:

ARCELORMITTAL SA. This is the world’s biggest steel company, with sales of US$56.8 billion in 2016; sales in the U.S., Canada and Mexico accounted for US$15.8 billion, or 27.8% of total sales.

The question is whether ArcelorMittal’s U.S.-produced steel products would qualify as domestically made under any “Buy America” program. The workers are American, but the profits go to a foreign-owned parent.

NUCOR CORP. Revenue in 2016 was US$16.2 billion.

Coleman’s report calls the company “a best-in-class steel manufacturer” and Racanelli says it’s a “high-quality firm, with a strong balance sheet and good management.”

However, a recent report by Credit Suisse analysts in New York states that the stock is not expected to “outperform” and that earnings estimates “remain too high.”

U.S. STEEL CORP. Revenue in 2016 was US$10.3 billion.

Coleman’s report states: “We expect the company to return to profitability this year with help from stronger pricing, continued cost reductions and tariffs on imported steel. We also expect [the firm] to benefit in 2017-18 from increased infrastructure spending.”

A recent Credit Suisse report is less enthusiastic, stating U.S. Steel shares are “near fair value.”

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