How Do Markets View Steel Companies as Metal Prices Tumble?



Steel companies

After a horrid August, US steel companies (XME) are having an equally terrible September. After the spectacular rally earlier this year, market sentiment seems to be turning negative for leading US steel producers. U.S. Steel (X) and AK Steel (AKS), which have been among the best-performing steel companies in 2016, lost 29.3% and 32%, respectively, in August.

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Downward price action

Steel companies have seen downward price action in September as well. ArcelorMittal (MT) and Nucor (NUE) have lost 7.2% and 5.7%, respectively, so far in the month. The key driver of steel companies’ recent downward price action has been the fall in US steel prices.

After the spectacular rally in US spot steel prices between March and June 2016, we saw downward pressure on flat-rolled steel prices. Spot hot-rolled coil prices have fallen by ~$100 per short ton from their June peak. (You can read more about the recent correction in US steel prices in the Market Realist series Why the US Steel Industry’s Joyride Is Coming to an End.)

Series overview

In this series, we’ll see how various market participants are reacting to the recent correction in steel stocks. We’ll be looking at sell-side analysts’ ratings and target prices for leading steelmakers. We’ll also see how bears are playing the recent downtrend in steel stocks. Notably, earlier this year, bears lost their shirts by betting against the rally in steel stocks.

But the bears are back and back with a vengeance. Continue to the next part for more.


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