US flat-rolled steel prices have been depressed this year. While the prices seem to have bottomed and have seen some upwards momentum, US steel prices have lagged global steel prices in 2019. The depressed prices could be due to raw material pricing. Seaborne iron ore prices have been strong. Globally, steel prices and iron ore prices tend to be correlated. However, US steel prices (XME) are closely interwound with scrap prices. Steel scrap prices have been weak in the United States, which seems to be weighing on domestic steel prices.
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During the first-quarter earnings call, in response to the question “why are domestic mills charging at or below landed import prices if demand is so good and imports are down,” Nucor (NUE) CEO John Ferriola blamed new mill startup. Ferriola said, “When you start up a mill or restart a mill, there’s issues with some quality and deliveries and so forth that force you to be a little bit lower priced to gain the market share you’re looking to gain.”
U.S. Steel Corporation
While Ferriola didn’t name a competitor, U.S. Steel Corporation (X) restarted two blast furnaces at its Granite City facility last year. The company expects to increase its shipments after the mill ramps up this year. U.S. Steel Corporation has seen two downgrades this month. Analysts are concerned about rising US steel production capacity and U.S. Steel Corporation’s weak competitive position. U.S. Steel Corporation is also expected to burn cash this year amid the higher outlay towards its asset revitalization plan.
The company’s first-quarter earnings call would likely provide an opportunity for management to address some of these concerns. U.S. Steel Corporation’s sell-off looks overdone and most of the negatives seem priced in. To learn more, read Steel Stocks Could Be in for a Revival after Recent Weakness.