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Are US Steel Stocks at a Tipping Point?

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US steel stocks

Steel stocks, including U.S. Steel Corporation (X), ArcelorMittal (MT), and AK Steel (AKS), are trading with double-digit losses this year. But after a rather dismal 2018, steel stocks could be at a tipping point.

Steel prices

US steel prices have held their ground despite several analysts expressing concern over the sustainability of high steel prices in the United States (SPY). As we saw in the previous part, Bank of America Merrill Lynch double-upgraded AK Steel. It also raised its 2019 steel price forecast, although it’s still below the current spot steel prices.

We’ve seen several brokerages turn bullish on steel and iron ore lately. Last week, Jefferies raised its target price for Cleveland-Cliffs (CLF). Last month, Credit Suisse said the steel industry’s fundamentals remain strong.

Buybacks

While investors have given a miss to metal and mining stocks, Nucor (NUE) and Steel Dynamics have announced massive share buyback programs. Nucor has announced a $2 billion share buyback that’s almost 10% of its market capitalization.

To sum it up, Wall Street analysts and steel companies have started to discover value at these prices. US steel prices are looking strong as import substitution has raised US steel producers’ pricing power. Although US steel stocks seem to have bottomed out, an escalation in the trade war could move investors further away from metals and mining stocks. You can read The Steel Industry’s Midyear Review: Outlook Gets Murky to see the steel industry’s bullish and bearish drivers.

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