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Tariffs are coming. And so are buyers of AK Steel stock.
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Shares of AK Steel (AKS +0.00%) 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.
Secretary Ross reportedly recommended that the President consider imposing one of the following:
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%.
All of sudden, steel stocks are red hot. Image source: Getty Images.
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.