Steel stocks saw a selling spree in May. All of the leading US steel producers like U.S. Steel Corporation (X), AK Steel (AKS), Nucor (NUE), and Steel Dynamics (STLD) hit their 52-week lows. All of these stocks fell below their March 2018 price levels when President Trump imposed a 25% tariff on US steel imports. U.S. Steel Corporation fell to a three-year low last month. AK Steel is also trading at a fraction of what it did before the tariffs were imposed. For Nucor and Steel Dynamics, record 2018 earnings and share buybacks haven’t helped revive investors’ sentiments. Nucor and Steel Dynamics stocks have also sagged amid weakness in the steel space.
The fall in steel stocks wasn’t really surprising. US steel prices have fallen significantly this year. Falling steel prices mean lower earnings for steel companies. So, markets have repriced steel stocks due to the expectation of lower earnings. The escalation in the US-China trade war isn’t helping steel or the entire metals and mining space.
Looking at the macro picture, US steel prices seem to have bottomed out. Steel scrap prices have also fallen in tandem with steel prices. However, seaborne iron ore prices are still at elevated levels due to supply-driven issues. Cleveland-Cliffs (CLF), which supplies iron ore to US steel companies, has outperformed steel stocks by a wide margin this year.
Now, we’ll discuss the micro factors. While all of the steel stocks have fallen this year, some of them could offer value at these levels. The level would likely depend on investors’ risk-return profile. All of the steel companies offer different value propositions from an investment standpoint.