How Analysts View the US Steel Sector and Cliffs Natural Resources

Longbow Research upgrades US steel stocks

On June 19, 2017, analysts at Longbow Research upgraded Nucor (NUE), U.S. Steel Corporation (X), Steel Dynamics (STLD), and AK Steel (AKS) from “neutral” to “buy.” These analysts cited strong evidence of an improved steel distributor market as their rationale for the upgrade.

Longbow Research’s analysts expect hot rolled steel coil prices to rise $50–$60 per ton due to an uptick in the downstream steel orders. Its analysts also anticipate near-term government support to the US steel sector (SLX) in the form of import restriction. The firm’s analysts noted that “some buyers” are expecting steel prices to rise to $700–$750 per ton after any government action from the current level of $590–$600 per ton.

The chart below shows the consensus ratings as well as the target price upsides and downsides for US steel stocks.

How Analysts View the US Steel Sector and Cliffs Natural Resources

Morgan Stanley

However, Morgan Stanley analyst Evan Kurtz believes that although the 2H17 outlook for iron ore prices is negative, most of the decline is already priced in. The weak outlook could impose headwinds on stocks such as Cliffs Natural Resources (CLF), U.S. Steel Corporation (X), and Schnitzer Steel Industries (SCHN). Kurtz added that because these three stocks have already fallen significantly this year, the downside is already priced in.

Deutsche Bank

Due to the massive declines in their stock prices year-to-date, Deutsche Bank (DB) also upgraded U.S. Steel Corporation and AK Steel to “buy” recommendations in June. The firm noted that the sector-level trends remain positive as the construction sector and automotive sector remain strong while the energy sector is recovering.

Deutsche Bank expects underlying demand to recover and imports to subside as Section 232 is formally released.