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What Steel Investors Should Watch in the 2nd Half of 2017

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Steel investors

Steel stocks are having a tough time in 2017 after the huge rally last year. As we’ve already seen, some steel companies such as United States Steel (X) and AK Steel (AKS) are trading with significant year-to-date losses. ArcelorMittal (MT) and Nucor (NUE) have also pared down their 2017 gains. With more than five months of 2017 behind us, let’s see what factors could affect steelmakers in the rest of 2017.

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Key drivers

  • capacity cuts in China: While China plans to cut its excess steel capacity, its steel production hasn’t shown any signs of a slowdown. Forget a decline; we’ve actually seen an increase in Chinese steel production this year, with April steel production hitting a fresh monthly high.
  • US steel demand: US steel demand typically tends to slow down in the second half of the year. We’ve seen a gradual increase in steel imports in the last few months. But if we see a moderation in US steel demand with a further increase in imports, US steel prices could come under pressure.
  • raw material prices: As noted previously, iron ore prices have pared down their 2017 gains. However, steel scrap prices, which are a key driver of US steel prices (XME), are holding steady. Movement in steel scrap prices could impact US steel stocks in the second half of 2017.

President Trump’s economic policies could also impact steel companies in the coming months. In the next parts of this series, we’ll see how the above factors could play out in the second half of the year. Let’s start by looking at the outlook for the Chinese steel industry.

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