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Steel Companies Must Weather These Issues in 4Q16

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Oct. 10 2016, Published 11:34 a.m. ET

Steel industry 4Q16 outlook

Steel stocks have had a rough ride over the last few weeks. U.S. Steel (X) and AK Steel (AKS) have fallen 6.2% and 3.1%, respectively, so far in October 2016. Steel Dynamics (STLD) has fallen 3.1%, while Nucor (NUE) has fallen 4.2% month-to-date.

Notably, steel companies witnessed a sharp rally in the first half of 2016 as US flat steel prices rose almost 70% between January and June. Steelmaking raw materials such as iron ore, steel scrap, and coking coal also rallied in 1H16. 

Apparently, coking coal has been the best performing commodity in 2016, rising more than 170% since the beginning of the year. Coking coal prices have rallied this year due to China’s capacity closures and weather-related disruptions in Australia.

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Negative sentiment

After the spectacular rally, the market sentiment seems to be turning negative toward leading US steel producers. The change in sentiment isn’t surprising, as flat steel prices have corrected from their 1H16 highs. 

Steel companies have followed steel prices. The SPDR S&P Metals and Mining ETF (XME), which has invested almost 50% of its holdings in US-based steel companies, has also fallen 11.5% from its 2016 closing high.

Series overview

In this series, we’ll look at the steel industry’s 4Q16 outlook. We’ll look at the factors that could drive steel companies in 4Q16. We’ll also look at the key events and developments that steel investors should track during the quarter.

Let’s begin by looking at steel companies’ recent price changes.

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