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Why Steel Stocks Are Sinking Again Today

By Rich Smith - Mar 11, 2020 at 1:16PM

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Congress and the president have more pressing concerns than saving the steel industry right now.

What happened

Good news for the economy! U.S. Treasury Secretary Steven Mnuchin announced this morning that the Trump Administration is working on plans to lessen the pain of coronavirus for small and medium-size businesses and their employees. While details remain hazy, it's possible the measures to be taken will make it easier for banks to lend to such businesses, while the government suspends the collection of payroll taxes on such employees.  

Bad news for stocks! That may not do much to help large businesses such as U.S. Steel (X -0.92%), Gerdau S.A. (GGB -3.73%), and Companhia Siderurgica Nacional (SID -5.29%) -- and shares of these three steelmakers are down 7%, 8.6%, and 11.4%, respectively, in response to the news.

Moltern steel pours in a foundry

Image source: Getty Images.

So what

Shareholders in steel stocks can take some (small) comfort in the fact that this is not necessarily the way the Trump Administration wanted it to go. Speaking at a House Appropriations subcommittee hearing today, Mnuchin noted that, "the president very much wants to consider a [broader] stimulus bill, whether it is through a payroll tax or otherwise. [However, w]e realize that may not get done this week, so we want to get done what we can do this week and we will come back" later to attempt to do something to stabilize larger companies -- and the economy as a whole.

Now what

What that later proposal might look like could depend largely on a relief plan that Democratic lawmakers plan to reveal in the House later today -- and whether it accords with the president's thinking. However, early indications don't hold out a lot of hope for steel stocks in particular.

Although Munchin told legislators that "the president feels very strongly we need to protect industry," his thoughts appear to be focused at present on the idea of issuing loan guarantees to the travel industry, and perhaps finding a way to support oil prices as well.

For the time being, the idea of saving steel stocks from their declines appears to be shelved -- and steel stock prices could suffer until someone has time to think about them.

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Stocks Mentioned

United States Steel Corporation Stock Quote
United States Steel Corporation
$17.74 (-0.92%) $0.17
Gerdau S.A. Stock Quote
Gerdau S.A.
$4.13 (-3.73%) $0.16
Companhia Siderúrgica Nacional Stock Quote
Companhia Siderúrgica Nacional
$2.77 (-5.29%) $0.15

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

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