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Why the US Steel Industry’s 4Q17 Outlook Is Hazy

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Part 2
Why the US Steel Industry’s 4Q17 Outlook Is Hazy PART 2 OF 9

What Could Drive US Steel Prices in 4Q17?

US steel prices

Steel companies’ earnings are sensitive to changes in spot steel prices. Although steel companies also sell steel on a contract basis, changes in spot pricing tend to impact contract pricing as well. In this series, we’ll look at the different factors that could drive US steel prices in the fourth quarter. Before we look at the outlook for steel prices, let’s study the recent movement in steel prices (NUE).

What Could Drive US Steel Prices in 4Q17?

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We should remember that HRC (hot rolled coil) prices are seen as a benchmark for steel prices. According to data compiled by the Metal Bulletin, spot HRC prices are ~$600 per ton. HRC prices have been moving sideways in the past few months.

Weakness

However, we saw some weakness in flat steel prices in September despite companies like AK Steel (AKS) pushing for price hikes. Analysts’ opinions about the outlook for steel prices vary. While some brokerages like Cowen see more downside in steel prices, Bank of America Merrill Lynch sees stronger steel prices in the fourth quarter. Recently, the company raised its 2017 HRC forecast to $700 per ton. Bank of America also upgraded U.S. Steel Corporation (X) from “neutral” to “buy.” However, Cowen downgraded U.S. Steel Corporation and ArcelorMittal (MT). Read Your Guide to Top-Rated US Steel Producers to analyze how analysts rate steel stocks this month.

How US steel prices could fare in 4Q17 depends on several factors including raw material prices (CLF) and movement in Chinese steel prices. In the next part, we’ll see how steel raw material prices could play out in 4Q17.

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