US steel stocks
US steel stocks are having a somber year so far. While the year started off well for steel stocks, they’ve seen selling pressures this month. Steel Dynamics (STLD) and Nucor (NUE) have gained 13.8% and 11.8%, respectively, year-to-date. Based on their closing prices on April 18, AK Steel (AKS) has gained 8.9% of its market cap, and U.S. Steel Corporation (X) has lost 9.8% of its market cap.
All these companies have underperformed the S&P 500 (SPY) so far this year. Can US steel stocks recover from their current slump? Let’s discuss this possibility in perspective.
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Chinese steel prices
Last year, falling Chinese steel prices took a toll on US steel prices. However, Chinese steel prices have been strong this year amid decent demand from end users. Higher seaborne iron ore prices have also supported Chinese steel prices. US steel prices are actually underperforming global steel prices this year.
In our view, US steel prices seem to have bottomed out, and they could see some upside in the coming months. The spreads between US and international steel prices have also moderated, which should help US steel companies raise their offer prices.
Some recent economic indicators, such as March’s retail sales and export data, have looked strong. However, housing starts data have disappointed the markets. Nonetheless, while the US steel demand outlook is still somewhat hazy, it seems good enough to support some upside in steel prices.
In its first-quarter earnings release, Steel Dynamics sounded positive about the US steel industry. After saying that flat rolled steel prices had reached “an inflection point in February 2019,” CEO Mark Millet said, “We believe the market dynamics are in place for domestic steel consumption to continue to increase this year.”