Have We Seen the Best of US Steel Prices This Year?
In the previous parts of the series, we saw what factors drove steel prices this year. The increase in steel prices was somewhat warranted as most steel producers were losing money given the depressed pricing environment.
Now, we’ll look at the outlook for US steel prices. It’s important to note that the earnings of steel companies including U.S. Steel Corporation (X), ArcelorMittal (MT), POSCO (PKX), and Gerdau (GGB) are sensitive to steel prices. Therefore, it’s crucial for steel investors (XME) to keep track of steel prices.
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We might have seen the best of US steel prices for 2016. There looks to be scope for more downward correction in steel prices. Spot HRC (hot-rolled coil) prices could fall towards $550 per short ton by the end of the year. More downward pressure on steel scrap prices, an increase in imports, the seasonal slowdown in steel demand, and increasing “risk-off” sentiments could be the key factors driving steel prices lower.
Also, US steel companies are making decent money by selling steel at current prices. It would be difficult for them to prove injury in case we get imports from new locations. The situation was different last year—steel producers almost everywhere were losing money.
Having said that, markets might already be pricing some degree of correction in steel prices. If the current steel pricing environment sustains in the coming months, most steel companies would end up delivering much higher earnings in the coming quarters—compared to their consensus earnings estimates.
The next key event for steel investors would be the 2Q16 earnings. In our upcoming series, we’ll explore how different steel companies’ earnings could play out in the quarter.
You can visit Market Realist’s Steel page for more updates on this industry.