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

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Part 8
Why the US Steel Industry’s 4Q17 Outlook Is Hazy PART 8 OF 9

What US Steel Investors Can Expect in 4Q17

US steel investors

So far in this series, we discussed the recent movement in steel and steelmaking raw material prices. In this part, we’ll look at the outlook for US steel prices given the known headwinds and tailwinds.

What US Steel Investors Can Expect in 4Q17

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Balanced

US steel prices could continue to trend sideways in 4Q17. While the seasonal demand slowdown, high import penetration levels, and lower raw material prices are headwinds for US steel prices, investors can find some succor in moderate spreads between US and international steel prices that could limit any downside in US steel prices (X) (AKS).

Although the Section 232 imports probe is taking some time, you can’t rule out some action from the Trump Administration. If there’s weakness in international steel prices (MT), US steelmakers could urge President Trump to come to their rescue. If we look at 1H17, US steelmakers including Nucor (NUE) and Steel Dynamics (STLD) posted healthy profits. Despite steel import challenges, Nucor’s expected its 3Q17 and 1H17 earnings to exceed its fiscal profitability for the last eight years.

Near-record profits

In times of near-record profitability, public support could be limited for US steelmakers in their fight against steel imports. However, if the global steel market conditions deteriorate more and US steel companies resort to production cuts, we might see job losses. There might be pressure on the Trump Administration to act against steel imports.

Meanwhile, with the recent correction in steel companies’ stock prices, the markets seem to have already priced some of the risk factors. We’ll discuss this in more detail in the next part.

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