Outlook for steel prices
Steel prices are one of the most important drivers for steel companies’ profitability. In the US, steel prices fell by ~10% in 2014. Most of the fall came towards the end of the year.
However, steel prices in the US are still above other countries. In fact, this was one of the reasons for the historically high levels of steel imports in 2014. In this part of the series, we’ll look at the outlook for steel prices in 2015.
Steel prices in 2015
The above chart shows the movement in hot-rolled, or HR, coil prices in 2014. Analysts’ use HR steel prices as a benchmark for steel prices. In the US, steel prices fell. You can see this in the above chart. The fall in steel prices can be attributed to the high levels of imports in the US.
The economic slowdown in China, Europe, and Japan led to higher steel exports from these countries. You can learn more about the dynamics of steel imports in our recent series What investors must know about US steel imports.
Steel prices will likely be subdued
Steel prices are expected to be subdued—at least for the first half of 2015. The factors—that led to a correction in steel prices—are still there. They’ve been aggravated more. There doesn’t appear to be a quick fix to China’s slowdown. Also, Europe isn’t returning to happier days anytime soon.
The slowdown in global markets should keep steel prices low—at least for some time. Lower steel prices would mean lower revenues for steel plays—like ArcelorMittal (MT), U.S. Steel Corp. (X), AK Steel (AKS), and Steel Dynamics (STLD). The SPDR S&P Metals and Mining ETF (XME) builds a diversified portfolio of these companies.
In the next part of this series, we’ll discuss how different steel plays are exposed to steel price volatility.