US steel prices haven’t fallen much in 2017. Currently, spot prices are slightly lower than the levels at the beginning of the year. Although we saw steel prices climb upward in January and February, the downward correction in April and May took away all those gains.
With steel prices not moving much this year, we would expect steel stocks to also trade sideways. However, that’s not the case, as we saw in the previous part of this series. Companies such as United States Steel (X) and AK Steel (AKS) are trading with massive yearly losses. Let’s see why steel stocks are having such a dismal year.
In the post-election rally, the markets priced in a lot of positives. To be sure, President Trump’s proposed trillion-dollar infrastructure plan and his campaign pitches of saving US manufacturing raised hopes of a sustainable turnaround in the US steel industry (MT) (NUE).
The global macro picture also looked encouraging at the beginning of the year. The year started on a positive note on better-than-expected manufacturing data from China. That was in stark contrast to 2016 when China’s dismal manufacturing data triggered a sell-off in the global markets, especially companies in the metals and mining space (SPY) (SPX-INDEX).
Since China is the largest consumer of most commodities, prices tend to react sharply to Chinese economic data. China’s 1Q17 economic data helped support the global steel markets. The country’s construction activity bounced back, and car sales weathered the sales tax hike that came into effect this year.
While 1Q17 went well for steel stocks, we started to see selling pressure in April and May. We’ll look at the possible reasons for that in the next part of this series.