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Steel Stocks Rebound On Trump Infrastructure Plans, M&A Talk

Steel stocks rebounded Tuesday after sliding Monday with the broader market on news of falling scrap prices. The catalyst may have been news reports that the White House is considering quicker action on President Trump's trillion-dollar national infrastructure plan.

While markets were higher across the board, with the Dow Jones industrial average, S&P 500 and Nasdaq composite all up modestly on the stock market today, Trump-related infrastructure stocks were outperforming.

Among steel makers, Tenaris (TS) jumped 4.9%, AK Steel (AKS) rose 3.2%, Nucor (NUE) 1.2%, Steel Dynamics (STLD) 2.8% and U.S. Steel (X) 2.8%.

Materials and construction equipment stocks also got a lift, with Vulcan Materials (VMC) up 1.9%, Martin Marietta (MLM) 1.4% and Caterpillar (CAT) 1.6%.

The outsize gain for AK Steel, whose shares had sunk 36% from a multiyear high set in early January, came amid speculation that the slumping steel maker may be a takeover target.

Last week, JPMorgan analyst Mike Gambardella raised his price targets on AK Steel, Nucor, Steel Dynamics and U.S. Steel amid expectations of stronger earnings growth and earnings preannouncements from Nucor and Steel Dynamics. His thesis: Steel-sheet imports are headed lower thanks to trade enforcement. Along with "continued domestic producer supply discipline," that will help support steel prices in the U.S.

But Morgan Stanley analyst Evan Kurtz said in Monday research note that East Coast steel-scrap prices had fallen $30 a ton, a negative sign for demand.


IBD'S TAKE: The quick and sudden flop of RyanCare proved that President Trump knows how to cut losses. Expect him to do the same with deficit-neutral tax reform and quickly shift to old-fashioned, deficit-increasing tax cuts.


M&A could be a positive for the entire sector if it reinforces supply discipline, and the Trump administration might be more amenable to steel industry mergers than the Obama administration.

While prospects for Trump's infrastructure plan remain unclear, Axios reported that the White House is thinking about packaging its building program with tax cuts this year. There had been talk that infrastructure funding legislation could slip to 2018.

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