US steel prices
One of the factors driving the weakness in US (IVV)(SPY) steel companies’ stock prices and Cleveland-Cliffs’s (CLF) stock price in particular is the falling domestic spot steel prices. After rising to their highest level in a decade in 2018, hot-rolled coil (or HRC) prices in the United States have started weakening. Spot HRC peaked at ~$920 per ton in July and is now trending ~22% below that level despite efforts from companies like Nucor (NUE) and ArcelorMittal (MT) to increase prices.
According to Argus, the Argus US Midwest HRC index fell to $714 per ton for the week ending January 4 compared to a week earlier. Weaker demand is also negatively impacting the US steel scrap prices, which according to Argus are down by $30 to $35 per gross ton for January deliveries.
After a weaker holiday period, demand is yet to take off in a significant manner to drive prices up. The recent weakness in US steel prices could also be due to weak global steel prices. Chinese steel prices have fallen ~20% from their 2018 peaks.
Still supportive of earnings
Even after the recent fall, steel prices remain supportive of US steelmakers and Cleveland-Cliffs (CLF). As the seasonally weaker period ends, prices seem to have bottomed out. CLF benefits from the steel price rising more quickly than domestic steelmakers.
Apart from issues at home, US steelmakers are facing global concerns, especially the slowdown in China. We’ll discuss this issue in the next part of this series.