April 18, 2018 / 6:44 PM / 3 months ago

Earnings of Alcoa, steel makers in focus for insight on tariff impact

NEW YORK, April 18 (Reuters) - Shares of Alcoa, Steel Dynamics and Nucor have risen this week, ahead of earnings and boosted by higher commodity prices following sanctions on Russia’s UC Rusal and U.S. tariffs on imported steel and aluminum, and investors are keen for more details on the impact of these political measures.

Alcoa, due to report after the closing bell on Wednesday, was up 4.9 percent on the day and up nearly 9 percent for the week so far. It rose 14.4 percent last week, when U.S. sanctions on Rusal, the world’s second-biggest aluminum producer, sharply drove up aluminum prices.

Aluminum prices hit their highest level since 2011 this week.

Investors’ focus is likely to be on the companies’ outlooks, which analysts said could be stronger than expectations given the jump in aluminum and steel prices.

If Alcoa uses the same type of analysis as previously, said David Lipschitz, senior analyst for metals and mining at Macquarie Capital in New York, “My guess is ... their numbers would have to go up if they do it off of what (the spot aluminum price) is today.”

He rates Alcoa “outperform,” though he said plenty of uncertainty remains over the longer-term impact of the sanctions on the market.

The quarterly results could provide among the first comments from companies that are likely to benefit from the tariffs or sanctions, though Lipschitz said the benefit of tariffs for Alcoa is less certain because of its operations in Canada.

Last month, U.S. President Donald Trump moved to impose tariffs on steel and aluminum imports, with initial exemptions for Canada and Mexico. The United States has since granted temporary exemptions to the European Union and six other allies.

“With the tariffs and/or quotas we have to wait and see ... there’s a lot of uncertainty around that in terms of how that plays out,” Lipschitz said.

Steel shares have risen this week as well, although they have been volatile since the tariffs’ announcement, given news over which countries might be exempted.

Shares of Steel Dynamics, also due to report after the bell on Wednesday, are up 7.3 percent so far this week, while Nucor, due to report Thursday, is up 6.2 percent. The S&P 1500 steel index, however, is down 4.7 percent since March 1, when Trump announced the tariffs.

“What investors are going to be keenly aware of is what the outlook is for the second quarter,” said Philip Gibbs, analyst at KeyBanc Capital Markets. “For Nucor and Steel Dynamics, it’s going to be very good because these companies have a very high spot orientation and we know spot prices ... have gone up a lot since the announcement of the tariffs.”

All three of the stocks also look less expensive relative to the broader market. Alcoa is trading at about 15.7 times forward earnings compared with 16.7 for the S&P 500, according to Thomson Reuters data.

Steel Dynamics is trading at 10.5 times forward earnings and Nucor at 10.9 times.

For the first quarter, analysts expect earnings for Alcoa of 70 cents a share. Steel Dynamics is expected to report 91 cents a share and Nucor to report $1.10 a share, according to Thomson Reuters I/B/E/S. (Reporting by Caroline Valetkevitch; editing by Alden Bentley and Leslie Adler)

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