Steel industry indicators
Steel is a cyclical industry with its fortunes tied to several macroeconomic factors. There are several indicators that investors in steel plays can track to get a sense of the steel industry’s health. There are global as well as domestic indicators that investors in companies like U.S. Steel (X), ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS) should track. In this series, we’ll analyze the major indicators of the US markets.
These indicators should help you understand the latest developments in the steel industry. The SPDR S&P Metals and Mining ETF (XME) has ~35% exposure to steel plays. It could be an alternate way to play the steel industry if you wish to avoid the hassles of picking individual stocks.
The steel industry’s performance
The steel industry had a roller coaster ride in 2014. The sector saw its fortunes change several times last year. However, most steel plays delivered negative returns for investors. As you can see, only Steel Dynamics (STLD) managed to deliver positive stock market returns in 2014.
The chart above shows the recent performance of steel plays. As you can see, there has been a lot of volatility in steel companies this year. However, most of this volatility was associated with the 4Q earnings releases.
4Q financial performance
The 4Q earnings of steel plays were a mixed bag at best. U.S. Steel’s earnings and AK Steel’s earnings were better than analyst expectations. Their share prices rallied after their earnings releases. Nucor received a tepid response to its 4Q earnings. Steel Dynamics posted a loss in 4Q, and its share prices fell after its earnings release.
In the next part of this series, we’ll discuss the key indicators of the steel industry.