Trade War Beneficiary Stelco Defies Steelmaker Stock Rout

(Bloomberg) -- As President Donald Trump and his Canadian counterpart Justin Trudeau lock horns over trade, at least one steelmaker north of the border is emerging as a winner.

Stelco Holdings Inc. gained the most in almost nine months after reporting steeper-than-estimated earnings and sales growth, a special dividend and wider profit margins than peers even as it incurred C$11 million ($8.5 million) in tariff-related costs.

On balance, Stelco probably will be a beneficiary of the trade spat after Canada put up its own tariffs to prevent dumping, according to Chief Executive Officer Alan Kestenbaum. The company, which caters mostly to clients at home, is profiting from a surge in U.S. prices that serve as a benchmark in Canada.

“Net-net” the company sees the Canadian market expanding for Stelco amid the tariffs because the U.S. ships more steel there than vice versa, Kestenbaum told analysts on a call Wednesday.

The stock jumped as much as 13 percent, the most since November, and was up 6.5 percent at 11:30 a.m. in Toronto even as all members of the Bloomberg Americas Iron/Steel Index slumped after U.S.-China trade tensions flared up again.

U.S. peers such as AK Steel Holding Corp. and other downstream producers are facing execution issues and raw-material inflation, Maxim Sytchev, an analyst at National Bank of Canada, said in a note to clients Tuesday.

“Obviously people are concerned about Nafta, that it could be demand destructive,” Sytchev said by telephone. “But in a quasi status quo world, which is the base case assumption for investors right now, Stelco is benefiting from these dynamics."

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