At the end of May, U.S President Trump announced tariffs on the steel (25%) and aluminum (10%) imports coming from fellow NAFTA members Canada and Mexico, as well as the European Union, which went into effect at the end of last week.
The move followed aluminum imports soaring by 33% over the past two years to record highs, putting pressure on American aluminum producers as cheap aluminum flooded the U.S market. Trump also described the issue as one of national security, as only one U.S aluminum smelter remains operational that can make high-purity aluminum, which is needed in the construction of fighter jets. Overall, just five aluminum smelters remain operational in the U.S, down from 23 in 1995.
Unsurprisingly, companies that use steel and aluminum in their products have not been overly supportive of the tariffs, which could disrupt their supply chains and raise costs. Furthermore, retaliatory tariffs could further exacerbate the issue by making their exports less attractive overseas.
The U.S aluminum industry in particular could be harmed more than helped by the tariffs, as the vast majority of jobs in the industry (97%) are in downstream positions compared to just 3% in the smelting positions that could be slightly revitalized. The U.S also imports far more aluminum (90%) to meet its needs than it does steel (30%), with Canada being the largest aluminum exporter to the U.S.
In this article, we’ll take a look at five stocks that will be affected by higher steel and aluminum costs, as well as by some of the retaliatory tariffs that have already been fired off in response to those taxes.
The beer makers figure to be two of the companies most heavily impacted by the tariffs on aluminum, which is increasingly used in the production of beer cans. Molson Coors estimates that aluminum accounts for 66% of its packaging costs, purchasing 500 million pounds of it annually, and that $40 million in profit could be wiped out by the increased costs.
Both companies have warned that the tariffs could lead to job losses in the industry, with Anheuser Busch Inbev NV (ADR) (NYSE:BUD) warning on Twitter that a 10% aluminum tariff would threaten 20,000 manufacturing jobs in the industry, while Molson Coors stated that job losses in the industry were “likely”. U.S. Beer Institute CEO Jim McGreevy went so far as to call the tariffs a new tax on the beer industry.
Molson Coors Brewing Co (NYSE:TAP) shares are down by 17% this year, though they’ve rallied since the beginning of the month, while Anheuser Busch Inbev NV (ADR) (NYSE:BUD) shares are down by 14%. Hedge funds were not overly confident in either stock heading into 2018, as just 24 were shareholders of Molson Coors on December 31, down from 31 three months early. During that same period, hedge fund ownership of Anheuser Busch dropped to 27 from 30.
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On the next page we’ll look at three other companies that will be impacted by rising steel and aluminum prices.