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Which Steel Stocks Can Weather the Current Downtrend?



Steel industry in a downtrend

The global steel industry is currently witnessing a cyclical downtrend. There is a global overcapacity that is leading to higher exports, especially from China. Steel prices have been depressed for over a year now as cheap Chinese steel floods international markets. Despite all talks of China cutting its steel capacity, there looks to be no respite from the Chinese steel export deluge.

Many, including us, had earlier expressed optimism over a possible 2H15 recovery in the steel industry. However, a sustainable recovery in the steel industry’s health has been elusive. On their part, US steel companies have filed a series of trade cases, but we’ve yet to see any meaningful trade action this year.

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Downward spiral

The downtrend is best reflected in steel companies’ recent stock market performances, as can be seen in the chart above. Until September 18, U.S. Steel Corporation (X) and AK Steel (AKS) have lost 45% and 55%, respectively, on a year-to-date (or YTD) basis. Nucor (NUE) and Steel Dynamics (STLD) have been relatively better-off, losing 18% and 9%, respectively, over this period.

You can also access the steel industry with the SPDR S&P Metals and Mining ETF (XME). Its exposure to the steel industry is ~42%, and it provides diversified exposure to the metals and mining space. Until September 18, XME has lost 33.21% on a YTD basis.

Divergence in performance

Steel companies’ performances have been quite divergent this year. In this series, we’ll look at key differences between steel companies. This should help you to understand which companies are better placed to weather the current slowdown in the steel industry.


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