Why brokerage upgrades have driven steel companies

Mohit Oberoi, CFA - Author
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Aug. 18 2020, Updated 5:17 a.m. ET

Brokerage upgrades 

In the last part of this series, we discussed the anti-dumping duties that were imposed on oil country tubular goods (or OCTG).

The International Trade Commission’s (or ITC) ruling was a big relief for U.S. steel companies. As a result of the ruling, Credit Suisse doubled its price target for U.S. Steel Corp. (X) to $50. This wasn’t the only upgrade in the steel sector. In this part of the series, we’ll analyze how various brokerages upgraded their targets on steel companies.

Rating upgrade for ArcelorMittal

In August 2014, UBS upgraded ArcelorMittal (MT) to buy with a price target of $19. This was two notches above the sell rating that UBS had on MT. The improvement in the Eurozone was the main reason for the rating upgrade. This was another trigger for the steel shares’ rally.

Steel Dynamics upgrade by KeyBanc

In August 2014, KeyBanc upgraded Steel Dynamics (STLD). Steel Dynamics announced the acquisition of Severstal assets. Severstal is a Russian steel company. It decided to leave the North American markets. It sold its assets.

AK Steel Corp. (AKS) also bought the Dearborn operations from Severstal. These acquisitions were a positive sign for AKS and STLD. Their stock prices rallied after these announcements.

So, everything was going fine for steel companies. What caused the current bloodbath in these companies’ share prices? Why have stocks—like AK Steel—fallen by more than 40% in past few weeks? We’ll analyze this in the next part of the series.

Investors can also gain access the steel industry through the SPDR S&P Metals and Mining ETF (XME).

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