US steel stocks are rising
US steel stocks are rising in July and building on June’s strength. Previously, US steel stocks saw a selling spree in May. All of the leading steel producers including U.S. Steel Corporation (X), AK Steel (AKS), Nucor (NUE), and Steel Dynamics (STLD) fell to their 52-week lows in May. The fall in US steel stocks was driven by the massive decline in US steel prices. After rising to a decade high in the first half of 2018, US steel prices fell in the second half of the year. The fall in US steel prices intensified this year. U.S. Steel Corporation restarted two blast furnaces last year. The company announced the curtailment of two US blast furnaces in June. U.S. Steel Corporation also curtailed one blast furnace in Europe. ArcelorMittal (MT), the world’s largest steel producer, curtailed its production in Europe twice in May.
Since June, US steel companies have announced three rounds of price hikes. The first round didn’t gain traction. However, we saw momentum in US steel prices after the second round. Last week, US steel mills announced the third round of price hikes. S&P Global Platts reported that “ArcelorMittal USA informed its customers on Monday morning it would be raising flat-rolled steel prices, marking the third round of increases since the end of June.” The company said, “The steelmaker said it would be charging new minimum base prices of $630/st for hot-rolled coil and $800/st for cold-rolled and coated coil products.” Meanwhile, US steel stocks are rising amid the uptrend in US steel prices. In June, U.S. Steel Corporation, AK Steel, Nucor, and Steel Dynamics gained 2.0%, 5.5%, 2.7%, and 6.3%, respectively.
US steel stocks are rising despite earnings miss
US steel stocks are rising in July despite the earnings miss from Nucor and Steel Dynamics. AK Steel’s earnings are expected on July 29. U.S. Steel Corporation is slated to release its earnings on August 1. Notably, Nucor and Steel Dynamics both expect steel pricing to firm up. John Ferriola, Nucor’s CEO, said in the company’s earnings release that “We are cautiously optimistic that pricing has bottomed for most products and that volumes should be more closely aligned with real end-use demand in the second half of the year.”
Steel Dynamics also pointed to strength in US steel prices. The company sees strength in steel scrap prices. US steel prices and scrap prices tend to move in tandem. US steel buyers usually try to time their purchases looking at steel scrap prices. If scrap prices are falling, buyers hold back on their purchases. Buyers expect steel prices to also fall.
We saw supply chain destocking in the first half of 2019. Buyers expected US steel prices to fall. Now, with US steel companies announcing price hikes, buyers are returning to markets amid depleting inventories. Will US steel stocks continue to rise? In our view, there’s still some more upside in US steel prices. If US steel prices rise more, US steel stocks could also rise. Read US Steel Industry Outlook: Will June’s Momentum Continue? to learn more.