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Why Steel Dynamics Stock Dropped 9% Today

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

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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.

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Steel Dynamics, Inc. Stock Quote
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