Steel industry fundamentals
Steel is a cyclical industry with fortunes tied to several macroeconomic factors. There are several indicators 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 such as U.S. Steel Corporation (X), ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS) should track. In this series, we’ll look at the major indicators of the US markets. These indicators should help investors 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 for investors who want to avoid the hassles of picking individual stocks.
In our previous indicators overview series, we noted that the fundamentals of the steel industry are not in the best of health. The 4Q14 earnings of steel companies failed to instill any confidence among analysts.
In this series, we’ll analyze the latest indicators of the steel industry. We’ll see how steel industry fundamentals continue to worsen in 2015. The Wall Street performance of steel plays has lagged broader markets in 2015. The above chart shows the stock market returns of steel companies in 2015. As you can see, all major steel companies have delivered negative returns so far in 2015.
One of the major reasons for the steel industry’s lackluster performance is the fall in steel prices. Steel prices directly impact revenues and profitability of steel producers.
In the next part of this series, we’ll analyze the latest trends in steel prices.