Steel stocks are having a joyride in 2016. Markets took steel companies 1Q16 earnings into their stride as the focus has shifted from current earnings to improving steel market conditions. Spot steel prices have been on an upward momentum. The biggest gains have come in the flat-rolled steel products. Along with improving sentiments, flat-rolled steel has been helped by steep anti-dumping duties that were imposed earlier this year.
Flat-rolled steel makers including AK Steel (AKS), U.S. Steel (X), and ArcelorMittal (MT) have made the most of these trade duties. Steel mills have raised their base selling prices several times this year.
The impact of higher spot steel prices is visible in steel companies’ 2016 price actions. U.S. Steel and AK Steel, which get most of their revenues from selling flat-rolled steel products in the US market, have outperformed the steel space this year. This is not surprising because the US flat-rolled steel market has seen some real action this year.
Both U.S. Steel and AK Steel have outperformed the SPDR S&P Metals and Mining ETF (XME) by a wide margin this year, as can be seen in the graph above. XME is a bet on US-based metals and mining companies and has invested almost 50% of its holdings in the steel sector. Currently, Cliffs Natural Resources (CLF) is XME’s largest holding. You can read more about XME in our series A Deep Dive into the SPDR S&P Metals and Mining ETF.
But AK Steel has lost some of its 2016 gains. In this series, we’ll see what lies in store for AK Steel in 2016 to understand if AK Steel’s recent pullback is an opportunity or risk for investors.
Let’s begin by analyzing how Wall Street is currently rating AK Steel.