Steel Price To Recover In 2016, Major Bank Predicts

• Timna Tanners of Bank of America is expecting 2016 benchmark US hot rolled coil (HRC) to average $455/short ton, marking an increase from current spot prices of around $375 to $390 per ton.
• Tanners suggested that minimills will prove to be the "more attractive" investment option.
• The analyst added that United States Steel Corporation X and AK Steel Holding Corporation AKS could only see a near-term boost from trade case and mill price hike headlines.

US hot rolled coil (HRC) are currently selling for $375 to $390 per ton on the spot market. According to Timna Tanners of Bank of America, HRC prices are expected to increase to an average of $455/short ton in 2016, marking a "more modest rebound" than previously thought.

Tanners previously projected HRC prices would rise to $475/t in 2016. Her revised focus was attributed to a lower base than previously expected given the "recent market implosion." The analyst added that her China steel team is now forecasting a decline of 1.2 percent in global demand growth through 2016, but net exports will remain high at 91 million mt versus 96 million mt expected in 2015.

Minimills To Take Share, Nucor A ‘Wildcard'

According to Tanners, minimills will "increasingly be the more attractive investment" option heading into 2016 as the integrateds (such as US Steel and AK Steel) will only see a near-term boost from trad case and mill price hike headlines. However, the price hikes may prove to be insufficient to enable the integrateds to return to profitability.

Tanners added that both US Steel and AK Steel face lower annual contract pricing on 25-33 percent of shipments next year. In addition to that, US Steel will likely face liquidity issues in 2017 given a $450 million maturity mid 2017 and another $500 million maturity in early 2018.

Tanners also noted that Nucor Corporation NUE is the "wild card" heading into 2016 as it is uncertain if it will use the projected $2.2 billion in free cash flow it will generate in 2015 for any accretive activity.

Ratings And Price Targets

Shares of AK Steel remain Underperform rated with an unchanged $1 price target.

Shares of Commercial Metals Company CMC remain Neutral rated with an unchanged $17 price target.

Shares of Nucor remain Buy rated with an unchanged $52 price target.

Shares of Steel Dynamics, Inc. STLD remain Buy rated with an unchanged $23 price target.

Shares of US Steel remain Underperform rated with a price target lowered to $3 from a previous $7.