Deutsche Bank recently downgraded U.S. Steel Corporation (X) from a “buy” to a “hold.” The brokerage also lowered its price target from $47 to $35. According to Deutsche Bank, US steel prices have peaked.
Over the last couple of months, other brokerages such as BMO and Morgan Stanley have viewed U.S. Steel through a bearish lens. However, AK Steel (AKS) has seen some upgrades after underperforming the broader steel sector in 2018.
Peak steel concerns are not limited to the US markets. According to Bloomberg, citing an Australian government report, steel “production in China will peak in 2018 and then shrink next year as local demand drops.”
Strong steel demand in China helped support global steel prices in 2016–2017. While President Trump’s Section 232 tariffs have catapulted US steel prices to the highest point since 2008, strong global steel prices have also supported US steel prices.
Despite the tariffs and higher steel prices, investors haven’t warmed up to US steel stocks. Nucor (NUE) has gained just 4.7% this year. In contrast, the SPDR S&P 500 ETF (SPY) has gained 10.8% YTD (year-to-date) based on its October 3 closing price. Cleveland-Cliffs (CLF), which supplies iron ore to US steel companies, has outperformed steel producers and has gained 74.6% YTD.
In this series, we’ll see how the peak steel sentiment is hurting US steel investors. Let’s begin by looking at the US steel demand outlook.