Did Hurricanes Bend Steel Stocks' Strength This September?

U.S. steel investors will be watching closely next week as two bellwethers for the domestic steel business are expected to release Q3 guidance. Jefferies analyst Seth Rosenfeld says Nucor Corporation NUE will likely disappoint Wall Street by guiding for Q3 EPS of around 80 cents, while Steel Dynamics, Inc. STLD will come closer to consensus estimates by guiding for EPS of 65 cents.

Update: On Friday morning, Nucor said it sees Q3 GAAP of 75 cents-80 cents, which doesn't compare to $1.02 estimates.

Prior to hurricanes Harvey and Irma, the U.S. steel industry was demonstrating surprising seasonal strength in the third quarter. Through early September, weekly U.S. production was up 4 percent year-over-year and up 1 percent compared to Q2. However, Rosenfeld says Harvey and Irma likely had a negative impact on the Q3 production and shipments of Nucor, Steel Dynamics and Commercial Metals Company CMC, all of which operate in the South.

“Both NUE/STLD 3Q17 guidance expected next week may come below sell-side expectations, but likely match already cautious buy-side, with downside risks from recent hurricanes unknown,” Rosenfeld wrote. Despite headwinds from the hurricanes, the potential for an expanding metal spread into Q4 makes any guidance-related sell-off a buying opportunity next week.

Jefferies anticipates United States Steel Corporation X to maintain its previous full-year 2017 EBITDA guidance of $1.1 billion.

Jefferies estimates Q3 U.S. HRC prices to average $626/ton, up $10 from Q2. Iron ore prices are also expected to jump $10 to $73/ton. HRC spreads are expected to decrease by $6 per ton to $262.

Jefferies maintains Buy ratings o the following domestic steel stocks:

• Nucor
• Steel Dynamics
• U.S. Steel
• AK Steel Holding Corporation AKS
• ArcelorMittal SA (ADR) MT
• Cleveland-Cliffs Inc CLF
• Ferroglobe PLC GSM

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