Earnings, Patriotism, and China: Good News for US Steelmakers

U.S. Steel

Last week was quite happening for U.S. Steel (X) and other steelmakers (XME) like AK Steel (AKS) and ArcelorMittal (MT). The week started on a weak note, and steelmakers carried the negative momentum from the previous week. However, we saw some positive momentum towards the end of the week as Nucor (NUE) and Steel Dynamics’ (STLD) 1Q17 earnings lifted market sentiments.

Earnings, Patriotism, and China: Good News for US Steelmakers

Domestic factors

Both Nucor and Steel Dynamics posted a sharp increase in their 1Q17 profitability. Steel Dynamics’ EBITDA (earnings before interest, tax, depreciation, and amortization) rose to $421 million in 1Q17 compared to $214 million in the sequential quarter. Nucor reported EBITDA of $773 million in 1Q17. The company posted adjusted EBITDA of $425 million in 4Q16 and $347 million in 1Q16. While steel companies’ strong 1Q17 earnings certainly helped boost sentiments, management’s commentary on the industry outlook looked equally promising. To add to that, the Trump administration has launched a probe to ascertain whether steel imports threaten “national security.”

International macro factors

If the domestic factors weren’t enough, international events have kept steel investors on their toes. We’ve seen wild price swings in Chinese steel prices and seaborne iron ore prices over the last couple of weeks. Falling Chinese steel prices led to a sell-off in US steel stocks also. However, coking coal, another steelmaking input, surged past $300 per metric ton in the spot seaborne market on supply disruptions in Australia.

In this series, we’ll see how these different factors could impact US steelmakers. Let’s begin by looking at the implications of Trump’s executive order.