Steel prices are one of the primary factors (along with US steel production) that drive US steelmakers’ earnings, and so it’s imperative for investors in US steel and iron ore companies (CLF) to track steel prices (SLX) in the US.
US steel prices began an upward march after high anti-dumping duties were levied on imported steel in 2016. Prices got another boost after the election of Donald Trump as US President in November 2016, given his supposed stance on protectionism and infrastructure spending.
Steel price progression
HRC (hot rolled coil) steel prices moved sideways in August 2017 in the range of $610–$630 per ton, and YTD (year-to-date), prices have been range bound. After the prices touched a trough of ~$580 per ton in June 2017, they’ve shown resilience.
During its 2Q17 earnings call, Cliffs noted that HRC prices should improve in the second half of 2017 as steel demand continues to improve. CLF CEO (chief executive officer) Lourenco Goncalves mentioned that panic buying from service centers and other steel consumers could drive steel prices higher.
BMO Capital Markets also believes that US steel prices should see positive momentum going forward, mainly due to higher inputs costs. It noted that higher costs for materials such as scrap, iron ore, and metallurgic coal would collectively lead steel producers to push through additional price increases.
While BMO feels that mini-mills such as Steel Dynamics (STLD) and Nucor (NUE) are better positioned to take advantage of this phenomenon, other companies such as U.S. Steel (X) should also benefit from this.