US steel prices
US steel prices were range-bound in August. Although steel companies have been pushing for price hikes for quite some time now, they faced little success last month. We’ve now seen steel companies pushing for another round of price hikes, and AK Steel (AKS) has made a public announcement to that effect.
Bank of America Merrill Lynch analyst Timna Tanners expects US steel prices to rise further this year. The firm has raised its 2017 HRC (hot rolled coil) steel forecast to $700 per ton. The brokerage also upgraded U.S. Steel (X) from a “neutral” to “buy.”
Section 232 imports probe
While the Section 232 imports probe seems to have gone into cold storage, steelmakers are still trying to keep the flame alive. Companies including Nucor (NUE) and ArcelorMittal (MT) recently wrote a letter to President Trump regarding steel imports, and while the letter may or may not have any impact on the ongoing steel import probe, it could help build positive sentiment in US steel markets (AKS) (CLF).
That said, steel companies are pushing for a price hike ahead of the seasonally weak fourth quarter. After the current round of price hikes, price arbitrage would further widen between US and international steel prices.
Meanwhile, Chinese authorities have raised a red flag over the steep increase in the country’s steel prices, which could cap any upside in Chinese steel prices. For this reason, we might need to see some sort of import protection from the Trump administration in coming months to see any further increase in US steel prices.
In the next part of this series, we’ll do a comparative analysis of steel companies’ free cash flow yields.