Gordon Johnson On 'Perfect Storm For The Steel Mills': Why He's Bullish On US Steel, Cleveland-Cliffs

Steel stocks United States Steel Corporation X and Cleveland-Cliffs Inc CLF are off to a strong start to 2021 as investors anticipate a potential infrastructure spending bill around the corner.

GLJ Research analyst Gordon Johnson recently told Benzinga that he is bullish on U.S. steel even after its recent run.

“Oil prices are shooting through the ceiling, which suggests that you’re going to have a resurgence in energy demand. And that is a big driver for blast furnace steel,” Johnson said.

Related Link: Here's How The US Steel Industry Is Getting Greener

Steel Duopoly: Following the 2020 buyout of AK Steel by Cleveland-Cliffs, Johnson said there is now an effective duopoly in the U.S. steel market.

"U.S. steel prices are slated to go even higher near-term given Turkish scrap prices have recently reverted higher," the analyst said.

"If you want to get imports, you’re not going to get it until June or July, and the fear is if you buy it that far out, prices will have collapsed." 

President Joe Biden’s support for a potential $2 trillion in infrastructure spending is just one of many catalysts for steel stocks in the near-term, he said.

“Steel mills are in a very good position right now, and when you put that against the backdrop of inflationary pressures via opening back up and stimulus, an infrastructure bill that Biden is touting ... capacity is low right now, it’s just a perfect storm for the steel mills.”  

Johnson said he believes the weakness in tech stocks so far in 2021 is a sign of a prolonged market rotation out of high-growth speculative tech stocks and into industrials and other cyclical stocks.

Benzinga’s Take: Steel stocks won’t be the only ones that could get a boost from an infrastructure spending bill. Construction stocks, materials stocks, energy stocks and transportation stocks all have a lot riding on the infrastructure spending package.