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ArcelorMittal, Voestalpine, Salzgitter most at risk of tariff downside

In light of the import tariffs imposed by the U.S. government, ArcelorMittal, Voestalpine AG and Salzgitter AG have the largest downside risk in the European steel sector, JP Morgan Cazenove said in a May 31 note.

A 25% tariff on U.S. steel imports and 10% tariff on aluminum imports came into effect June 1 after the Trump administration lifted temporary exemptions for the EU, Canada and Mexico.

J.P. Morgan Cazenove analysts assessed the 25% steel tariff as the least favorable scenario for the European steel sector amid "potential for near-term impact from deflected material having an adverse domestic price impact" and growing risk of a trade war.

The team assigned a buy or "overweight" rating to ArcelorMittal, hold or "neutral" to Voestalpine and sell or "underweight" rating to Salzgitter.

In a previous May 30 note, the analysts said ArcelorMittal and Salzgitter were most leveraged in the European carbon steel sector from a pricing and sentiment perspective.

Meanwhile, ThyssenKrupp AG's Steel Europe has the highest sales exposure to the U.S., totaling 85%.

European Commission President Jean-Claude Juncker said the EU will dispute the tariffs at the World Trade Organization while also imposing additional duties on U.S. imports.

In a separate May 31 note, Swiss bank UBS said companies with a high steel production base in the U.S. will initially benefit from the tariffs but, in line with J.P. Morgan Cazenove's analysis, also identified Voestalpine, ThyssenKrupp and Salzgitter as being exposed to more downside risks than other companies in the European steel sector.

"European steel mills are likely to be the most vulnerable post the announcement," USB said, adding that Asian mills are less likely to be impacted.

Discussing the long-term repercussions, UBS analysts said the import tariffs may lead to higher end-product prices and a lower demand for steel.

"Longer-term, the tariffs on steel and aluminum could result in higher prices for end goods, e.g., cars, construction projects, home appliances, etc., and as such could lead to a reduction of steel consumption," UBS said in its May 31 note.