Please ensure Javascript is enabled for purposes of website accessibility

Why Steel Dynamics Stock Dropped 9% Today

By Rich Smith – Updated Nov 27, 2018 at 6:18PM

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

Sometimes, no good investment goes unpunished.

What happened

Shares of steel mini-mill operator Steel Dynamics (STLD 0.34%) suffered a steep sell-off on Tuesday, closing the day down 8.9%. Perversely, it seems investors have decided to punish the company for investing in its future.

Last night, Steel Dynamics announced that it will spend between $1.7 billion and $1.8 billion to build "a new state-of-the-art, electric-arc-furnace (EAF) flat roll steel mill in the United States." The new mill will give Steel Dynamics "approximately 3.0 million tons" of additional steel production capacity, including the ability to produce 450,000 more tons of galvanized steel, and to paint another 250,000 tons. The new mill's product offerings will include "various flat roll steel products, including hot roll, cold roll, galvanized, Galvalume and painted steel, primarily serving the energy, automotive, construction, and appliance sectors."

Molten steel pouring in a foundry

Investors don't seem too "hot" on the prospect of Steel Dynamics spending money to build a new steel mill. Image source: Getty Images.

So what

Construction isn't expected to begin until 2020, and the full $1.7 billion or $1.8 billion won't be spent before operations commence "in the second half of 2021." However, investors aren't waiting around to punish Steel Dynamics for investing in a steel market subject to apparently arbitrary price and demand swings at the whim of a president's trade war.

Now what

As much as I hate to say it, I can't really blame investors for their reaction. 2020-21 is right around the time the next U.S. presidential election could upend the system of steel tariffs that's currently making it a bit more attractive to make domestic steel investments such as the one Steel Dynamics just announced. What's more, there's a risk those tariffs could vanish even sooner, re-flooding U.S. metals markets with a torrent of cheap Chinese steel, should President Trump strike the right trade deal with China before his term expires.

It's sad to say, but in times of uncertainty like these, it doesn't always pay to invest in the future.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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

Steel Dynamics, Inc. Stock Quote
Steel Dynamics, Inc.
STLD
$70.95 (0.34%) $0.24

*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
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

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.