U.S. Steel’s outlook
Last year, we saw a steep rally in Chinese steel prices. As Chinese steel prices rose in the year, we saw rises in steel prices in other regions as well.
Remember that because it’s a low-cost producer and the world’s biggest steel importer, China’s steel prices tend to put a floor under international steel prices. Simply put, as China’s export offers rise, producers elsewhere also gain some pricing power.
After the steep rally last year, Chinese steel prices have seen downward pressure after peaking in February 2017. Not surprisingly, iron ore prices have also come under pressure. With Chinese steel prices and iron ore prices coming under pressure, what’s the outlook for US steel prices? Let’s take a look.
US steelmakers raised their selling offers last month. US steel prices have also built on last year’s gains. Spot HRC (hot rolled coil) prices are now in the ballpark of $650 per short ton, their highest level since October 2014. Spot CRC (cold rolled coil) prices are now at a five-year high.
Impact on 1Q17 earnings
However, in our view, US steel prices may have peaked, and we could see some downward pressure in the near term. As of now, a crash like the one we saw in 3Q16 looks unlikely. Nonetheless, the markets (XME) seem to be accounting for a slight correction in steel prices in their valuations of steel companies.
In the next article, we’ll look at Steel Dynamics’ (STLD) 1Q17 earnings estimates.