US Steel Stocks: Why Brokerages Are Bearish

Several leading brokerages have taken a bearish view of US steel stocks. All leading steel stocks are trading with year-to-date losses.

Citigroup turns bearish on US steel stocks

Several brokerages have turned bearish on US steel stocks. Today, Citigroup lowered U.S. Steel’s (X) target price from $15 to $12. The brokerage also lowered AK Steel’s (AKS) target price from $3 to $2.4. Citigroup also took a bearish view of Nucor (NUE) and Steel Dynamics. It lowered Nucor’s target price by $5 to $55 and Steel Dynamics’ target price from $34 to $32. Over the last week, several other brokerages have lowered their target prices for US steel stocks.

Other brokerages are also bearish on US steel

Yesterday, Longbow Research downgraded Steel Dynamics. On August 22, Cowen and Company also lowered U.S. Steel’s target price from $13.5 to $12. Jefferies lowered U.S. Steel’s target price by $2 to $14 on August 21. Credit Rating agency Moody’s also put U.S. Steel’s corporate family rating on review for a downgrade. Over the course of 2019, several analysts have taken a bearish view of US steel stocks.

What’s happening in the US steel industry?

US President Donald Trump recently said that the US steel industry is “thriving.” However, there have instead been some layoffs and plant closures over the last two months. US steel prices gained momentum between June and July as domestic mills announced three rounds of price hikes. However, this month, US steel prices have lost momentum. This can be attributed to two main factors.

Firstly, global steel prices have been subdued amid slowdown concerns. Secondly, US steel demand growth has been modest. Imported steel prices have been trending lower, affecting US steel companies’ pricing power. Expectations of a drop in US steel prices could also be making brokerages bearish on US steel stocks.

Scrap prices

To make matters worse for steel companies, steel scrap prices rose earlier this month. Generally, US steel prices follow scrap prices higher. However, this bullish thesis was shattered by the escalation in the US-China trade war and slowdown fears. Bearish steel market sentiments could act as a dampener if US steel companies try to push for another round of price hikes now. Furthermore, we’re now almost into the fourth quarter. US steel prices are seasonally weak in the fourth quarter amid tepid demand and inventory destocking.