Steel stocks rose Tuesday amid expectations of a favorable Trump administration announcement on trade policy.
The Department of Commerce is expected this week to announce findings from its Section 232 investigation into whether foreign-made steel imports threaten U.S. security. President Donald Trump signed a memorandum in late April asking Commerce Secretary Wilbur Ross to prioritize the probe, which could result in higher tariffs for Chinese and other foreign steel firms, to the benefit of the U.S. steel industry.
Senior administration officials told CNBC Tuesday a draft on the findings has been circulated to White House advisors and all federal government stakeholders for review.
US Steel two-day performance
"There is a lot of anticipation that there is going to be a statement by the Commerce Department today or later this week that suggests Trump impose something like the 232 tariffs," said Macquarie managing director Aldo Mazzaferro, who upgraded steel stocks in April .
He added that the steel market is "already beginning to improve" and any move by Trump to protect the U.S. steel firms could happen "quickly."
After a few months of an improved relationship with China, Trump appears increasingly frustrated with the country. Last week, he tweeted that Beijing's effort to curb North Korea "has not worked out."
On Tuesday, three senior administration officials told Reuters that Trump is impatient with China and is looking at a range of options, including tariffs on steel imports. Similarly, Axios reported Tuesday that the West Wing is discussing penalties on foreign firms for selling large quantities of steel in the U.S. at prices far below the market.
The White House and the Commerce Department did not immediately respond to CNBC requests for comment.
Some major firms on Wall Street upgraded steel stocks in the last few weeks in anticipation of the announcement and changes.
Last Thursday, Deutsche Bank upgraded U.S. Steel and AK Steel to buy from hold. Research analyst Jorge Beristain said apparent steel demand in the first five months of the year has risen 4 percent from the same period last year, while Trump's proposed $1 trillion infrastructure spending plan could also boost demand for steel.
"Supportive trade policy actions such as Section 232, could be a catalyst to change investor perception," Beristain wrote. "We now have Buys on all Steels & Service Center names as they should benefit from stronger US economic growth and rising trade protectionism."
The move followed Credit Suisse upgrades in late May. "We believe the Section 232 investigation has the potential to be one of the largest catalysts for steel stocks in the past decade," the Credit Suisse report said. The analysts also pointed to solid demand from China as support for the steel industry.
Overnight, China said industrial profits last month leaped 16.7 percent from a year earlier, following a 14 percent year-on-year increase in April. Separately, Chinese Premier Li Keqiang said China is capable of achieving its full-year growth target of around 6.5 percent. In 2016, China grew at its slowest pace in 26 years at 6.7 percent.
To be sure, an announcement in favor of U.S. steel companies may not necessarily boost the stocks as much as Wall Street hopes.
"Long term, this protectionism is definitely a risk to the manufacturing sector in the U.S.," Mazzaferro said, noting that keeping foreign firms out of the U.S. steel market could make domestic companies less competitive globally.
"We're skating at the edge of when we can drag this protectionism out," he said. "We can't do much more than we're doing other than risking a demand contraction."
U.S. Steel shares plunged in April after cutting guidance and reporting an unexpected loss, and fell again in May after its CEO stepped down. Shares are down more than 30 percent year-to-date.
Meanwhile, Commerce Secretary Wilbur Ross pulled out of a trip to Germany at the last minute, the German economy ministry said in a Reuters report Tuesday, without giving a reason for the cancellation.
— CNBC's Lori Ann LaRocco and Reuters contributed to this report.