9 Jan

Steel Industry 2017 Outlook: What Should Investors Watch For?

WRITTEN BY Mohit Oberoi, CFA

Steel industry 2017 outlook

As noted previously, 2016 was an exciting year for US steelmakers and most companies rose significantly during the year. Notably, Trump’s election helped fuel a rally in steel stocks (MT) like U.S. Steel (X), AK Steel (AKS), and Nucor (NUE). However, we should remember that in the medium to long term, earnings are a key driver of stock prices. Steelmakers’ earnings are sensitive to steel prices (DBC). In this article, we’ll look at the various factors that could drive US steel prices in 2017.

Steel Industry 2017 Outlook: What Should Investors Watch For?

  • The graph above shows the key factors that could impact US steel prices in 2017. Steel production is raw-material-intensive in nature. Iron ore, steel scrap, and coking coal are the key raw materials that go into steel production. Raw material pricing firmed up in 2016. Steel investors should keep a close eye on raw material pricing in 2017, as it can impact steel market sentiment.
  • The primary reason the United States is the top steel import destination is the difference between US and international prices. Historically, US steel prices have been higher than international steel prices. In 2017, it will be crucial for investors to follow international steel prices. Notably, higher spreads between US and international steel prices act as a magnet for US steel imports.
  • According to China, it exceeded its steel capacity cut goal for 2016. The country plans to cut its steel capacity further in 2017. Steel investors should closely follow China’s steel demand-supply metrics in 2017.
  • US steel companies are also banking on Trump’s proposed infrastructure investments and tough trade policies to revive their fortunes in 2017.

In the next article, we’ll analyze how steel raw material pricing could play out in 2017.

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