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Traders are making big bets that Trump's overdue decision on tariffs will boost steel stocks

  • The Department of Commerce is investigating whether foreign steel companies are damaging to U.S. national security.
  • MKM Partners believes tariffs would boost the domestic steel industry.
  • The decision to levy tariffs is overdue, as Secretary of Commerce Wilbur Ross last said action would be taken by late June.
Mounds of coking coal sit piled near the blast furnace at the AK Steel mill in Middletown, Ohio.
Luke Sharrett | Bloomberg | Getty Images
Mounds of coking coal sit piled near the blast furnace at the AK Steel mill in Middletown, Ohio.

The expectation that the White House will enact tariffs on steel imports has options traders bullish in the short-term.

"Notably the last time tariffs were placed on imported steel by President Bush in 2002 … stocks responded negatively," MKM Partners wrote in a note. "Options activity across steel stocks has been universally bullish ahead of this [administration's] event."

MKM is seeing unusual bullish activity in options for stocks such as AK Steel.

The steel industry is awaiting a decision from the Commerce Department regarding tariffs on foreign steel imports. Secretary of Commerce Wilbur Ross said on April 24 that if steel imports threaten U.S. national security, the department will levy policy to counter.

"If we determine that steel imports are indeed a threat to our security, the department will recommend responsible action to the president," Ross said.

The Commerce Department's investigation into Section 232 of the Trade Expansion Act has yet to bear fruit, but the threat of action has given steel a boost. Steel stocks have risen several times in recent months on speculation that any tariffs levied would be a boon for the domestic steel industry.

On April 11, Ross announced that the Commerce Department found Korean steel producers have been selling oil country tubular goods into the U.S. market at a rate as much as 24.92 percent below fair value in the U.S. The Commerce Department said it would tell the U.S. Customs and Border Protection agency to "assess duties and collect cash deposits equal to the dumping margins found on all imports of the subject goods from Korea."

AK Steel is flat over the past month, trading within the $6 range as the industry holds its breath for the now-delayed Ross announcement.

MKM Partners looks "to position long into the impending event," the firm wrote, as it awaits what would be one of the steel industry's most significant policy changes in the past two decades.