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Steel Companies’ Sob Story: Record Earnings, Sagging Stocks

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Dec. 27 2018, Updated 3:30 p.m. ET

Steel companies

The Section 232 tariffs lifted US steel prices to multi-year highs, and benchmark HRC (hot rolled coil) prices rose to their highest level since 2008. Plus, since there wasn’t a similar surge in steelmaking raw material prices, US steel companies’ margins expanded.

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Record earnings

Both Nucor (NUE) and Steel Dynamics (STLD) expect to post record earnings this year. According to Nucor, “The Company expects to report full year 2018 consolidated net earnings in the range of $7.25 to $7.30 per diluted share, which would be a new annual record for Nucor and an increase of approximately 22% as compared to the Company’s previous record earnings of $5.98 per diluted share reported in 2008.” While Steel Dynamics “anticipates record annual 2018 earnings significantly higher than its previous record set in 2017.”

AK Steel

However, U.S. Steel Corporation (X) and AK Steel (AKS) haven’t seen the earnings surge that Nucor and Steel Dynamics recorded. While U.S. Steel’s asset revitalization plan has been dragging on earnings, AK Steel’s 2018 earnings have suffered from lower contract pricing. The company sealed most of its 2018 automotive supply contracts before the spike in US steel prices.

US steel companies have used their 2018 windfalls on everything from expansion to acquisitions. Several steel and iron ore companies, including Cleveland-Cliffs (CLF), have also announced buybacks to shore up their stock prices. However, despite record earnings and generous buybacks, investors haven’t warmed to steel stocks.

Could the story be any different next year? We’ll explore this outlook in the next and final part of this series.

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