Key Macro Factors Driving the Global Steel Industry This Year



Has the steel industry reached an inflection point?

Fundamentals of the steel industry have been quite weak over the last couple of quarters. Spot steel prices in the United States recently plunged to levels last seen during the financial crisis of 2008. After growing at a stellar pace last year, US steel consumption is expected to decline this year.

However, the steel industry seems to have reached an inflection point. Other industrial metals like copper and aluminum have had a horrid run in the last month. Aluminum was recently trading at its 17-month low. Copper prices have shed ~$600 per ton in the last month.

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Steel holding steady

Steel and iron ore prices have managed to hold steady. This supports our view that steel industry indicators have either bottomed out or are very near the bottom. But the tremors from past excesses like the incredibly high levels of imports will continue to haunt the steel sector for the next few months.

This is best reflected in Nucor’s (NUE) 2Q15 earnings guidance. The company’s guidance came in lower than Wall Street estimates. Nucor’s share price closed down marginally lower after its earnings guidance. The above graph shows the recent movement in Nucor’s share price.

Earnings of other steel companies such as U.S. Steel (X), ArcelorMittal (MT), and AK Steel (AKS) are also expected to be subdued in 2Q15. The SPDR S&P Metals and Mining ETF (XME) is an alternate play in the US steel sector. It has ~35% exposure to US-based steel companies.

In this series, we’ll analyze recent steel industry indicators investors should track. We’ll look at how the steel industry is doing in the United States and around the world. These indicators should help you understand the health of the steel industry.

In the next part, we’ll look at some recent indicators of steel demand in the United States.


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