Please ensure Javascript is enabled for purposes of website accessibility

Why AK Steel Stock Popped 14% on Friday

By Rich Smith - Feb 16, 2018 at 6:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tariffs are coming. And so are buyers of AK Steel stock.

What happened

Shares of AK Steel (AKS) closed 14% higher on Friday after it was reported that the U.S. Commerce Department, in the person of U.S. Secretary of Commerce Wilbur Ross, had recommended that President Trump grant "broad based relief" to U.S. steelmakers struggling with unfair competition from overseas.

So what

Secretary Ross reportedly recommended that the President consider imposing one of the following:

  • A global tariff of "at least 24%" on all steel imports into the U.S.
  • At least a 53% tariff on imports of steel from Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey, and Vietnam, combined with the simultaneous imposition of a quota capping steel imports from other countries at their 2017 levels.
  • A quota capping imports of steel from all countries at 63% of their 2017 levels.

The goal of these measures, whichever one is chosen, will be to increase U.S. steel production capacity to a level sufficient to ensure the long-term viability of the industry. In the Secretary's opinion, this will require increasing utilization from the present rate of 73% industrywide to approximately 80%.

Molten steel pouring in foundry

All of sudden, steel stocks are red hot. Image source: Getty Images.

Now what

That's the goal. The immediate effect of the protective measures -- again, regardless of which one is chosen -- will be to decrease the supply of cheap steel entering the U.S. market from abroad and permit U.S. producers such as AK to increase both production and prices. That should mean a quick boost to both revenues and profits.

With AK Steel currently eking out only a 0.2% profit margin (or worse) on its product, it's obviously a good effect from AK Steel's perspective. It also explains why the shares soared in response to Friday's news.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AK Steel Holding Corporation Stock Quote
AK Steel Holding Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.