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What Risks Could Steel Stocks Face at the End of 2018?

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Steel stocks

In this article, we’ll look at some of the risks that the US steel industry faces towards the end of 2018. We’ll look at global as well as domestic challenges.

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Global factors

An escalation in the US-China trade war could put pressure on Chinese steel prices. The country’s steel prices have already pared gains after hitting a seven-year high last month. Falling Chinese steel prices tend to have a ripple effect on other countries. Having said that, Chinese steel prices don’t impact global steel prices the way they did a couple of years back. Thanks to China’s supply-side reforms and trade actions by several countries, Chinese steel exports have come down steadily over the last couple of years after hitting an all-time high in 2015.

Domestic factors

We’re now approaching the seasonally weak fourth quarter, as US steel demand is seasonally low during the quarter. However, this year, we could see higher domestic supply from the restart of U.S. Steel’s (X) Granite City facility. Nucor (NUE) and Steel Dynamics (STLD) also ran their plants at high utilization levels in Q2 2018. Plus, AK Steel (AKS) also expects its Q3 2018 steel shipments to rise sequentially.

Simply put, we might see incrementally higher domestic steel supply amid seasonally weak demand that might pressure US steel prices in the fourth quarter. Furthermore, steel scrap prices have come under pressure this month. Generally, falling steel scrap prices tend to impact finished steel prices also.

Along with these bearish drivers, Section 232 exemptions could also weigh heavy on US steel prices (XME) in the coming months. We’ll explore this aspect in detail in the next article.

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