- US steel companies have expressed their opinions on the pricing environment during their respective earnings calls.
- Domestic prices have plunged to a three-year low. Notably, prices have been on a downward spiral over the last year as a deadly mix of domestic and global slowdown has negatively impacted market sentiments. However, companies are calling it a bottom now in terms of pricing.
US steel stock prices
We’re well into the third-quarter earnings season. Looking at the metal and mining space, Nucor (NUE) and Cleveland-Cliffs (CLF) have reported their quarterly earnings. AK Steel (AKS) and U.S. Steel (X) are expected to release their earnings next week.
Along with the hard financial data, the market also follows companies’ views on the macro picture, especially the pricing environment. As things stand today, the pricing environment has deteriorated over the last year. Meanwhile, with prices at three-year lows, domestic mills have called it a bottom. Let’s discuss this in perspective.
US steel companies
Nucor was quite vocal on the topic of US steel prices bottoming out. The company expects improvement in scrap prices to support finished metal prices. Also, Nucor sees an end to destocking and has seen its order rates improve.
The company expects the pricing and shipments to increase from these levels. Cleveland-Cliffs CEO Lourenco Goncalves called out “the rock-bottom in terms of prices.”
Trump’s steel tariffs
Notably, US steel prices have seen some of their worst-performing levels this year. Domestic steel stocks have also sagged amid falling metal prices. Lower prices prompted U.S. Steel (X) to idle two of its US blast furnaces this year.
ArcelorMittal (MT) has also idled facilities in the United States, and it announced a cut to its Europe production. Notably, ArcelorMittal gets most of its revenues from Europe. Although Trump’s steel tariffs helped lift the pricing last year, the tide turned in the second half of 2018. Trump’s tariffs are no match for the slowdown in the global and the US economy.
In my view, US steel prices appear to be near their bottom. We should see some recovery as we head toward the first quarter of 2020. Typically, the first quarter is strong in terms of demand. Also, with supply chain inventory so low, we could see some restocking next year.
Domestic steel imports have fallen, and the trend should continue. One risk for the global steel industry is the expected slowdown in China’s construction sector next year. Looking at the floor area purchased for future construction, we could see a slowdown in the country’s real estate development sector next year. Given China’s dominant share in global metal consumption, a slowdown in Chinese demand could negatively impact metal prices.
Please read US Steel Companies: Is Buffett’s Prophecy Coming True? for more analysis.