NEW YORK (TheStreet) -- Steel stocks may have spiked sharply Monday, along with the entire metals complex, after China made waves over the weekend with plans -- very deliberate plans -- to revalue the yuan, but the impact of the move on U.S. steelmakers is far from clear.
Investors initially bid up steel stocks with a vengeance Monday, but by the end of the session, share prices eased back.
finished the session at $44.97, up 3.6%, after earlier touching $46.25.
ended higher by 2.6% after rising as much as 7%; and
closed just 1% higher after an initial 4.8% spike.
Molten steel being poured from a ladle at a U.S. Steel Corp. facility
It's true that a
would, to some degree, discourage Chinese steel exports and, therefore, boost the competitive position of steelmakers in the U.S. That's because -- again, to some unknown degree -- a rising yuan would make the cost of producing steel in China higher.
But perhaps not by that much: some of those costs are, after all, denominated in dollars -- iron ore, for instance, the most crucial steel feedstock.
Furthermore, Beijing's plans call for only a gradual loosening of its currency, which means that there won't be much of an immediate impact, if any at all. As Michelle Applebaum, an independent steel-sector analyst, has pointed out, China likely doesn't want to make waves with its own population by letting the yuan appreciate. To do so would be to risk hurting its own once-massive export-based industries and endangering the paychecks of workers who make those sectors go.
Also, despite the histrionics of the American steel industry, Chinese steel exports weren't much of a real problem to begin with. U.S. producers love to grumble about Chinese currency manipulation and, by extension, what they see as artificially low Chinese steel prices. "It's a chronic complaint," says Leo Larkin, metals stock analyst at Standard & Poor's.
especially has made the issue an in-house hobby horse. As Nucor CEO Dan DiMicco, never shy to make his voice heard, wrote in a
Wall Street Journal
op-ed in December, "These countries such as China won't be partners until they stop using opportunistic and illegal trade practices like currency manipulation."
It's true that China has gone from being a net importer of steel to a net exporter over the last few quarters. Breakneck production has caused a large build-up in steel surpluses in China, adding to fears of an eventual dump onto the global market. In May alone, Chinese steel exports quadrupled.
But, others argue, the change has been slight: "nothing traumatic," says Michael Locker, a steel industry consultant based in New York. And the U.S. hasn't been much of a market for that product -- overall steel imports into the U.S. have only increased 10% this year. China, which accounts for more than half the world's steel production, uses the lion's share of its output domestically.
Lastly, as noted elsewhere, Beijing may also just be looking to placate world leaders ahead of the G-20 summit in Toronto later this week. The White House, pushed by Congress, along with the World Trade Organization, had been striving to put pressure on China for just such an announcement.
In the end, the gains made by steel names Monday were motivated more by the bullish message implied by China's yuan plan. Steel stocks had fallen sharply in recent months as investors worried about a potential deceleration of the nation's torrid economic growth as it attempts to avoid a real-estate asset bubble. Any talk of loosening its currency is, then, a signal that Chinese authorities feel confident that no "hard landing" is imminent.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.