Steel Stocks Have Wall Street's Attention

The U.S. steel industry has had a volatile couple of years with fluctuations in steel prices and uncertainty surrounding the fate of steel tariffs in an ongoing trade war. This week, several Wall Street analysts weighed in on steel stocks ahead of the G20 summit of world leaders.

New Steel Mill

After Monday's market close, Steel Dynamics, Inc. STLD announced plans to build a new $1.7 billion to $1.8 billion electric-arc-furnace (EAF) carbon sheet steel mill in the U.S.

KeyBanc analyst Philip Gibbs said Steel Dynamics investors may have mixed feelings about the new mill.

“U.S. carbon sheet-based stocks will likely be weaker tomorrow on the potential for further U.S. supply growth, while STLD investors may be a bit disappointed via potential for less bandwidth to pursue full-out share buyback momentum ($729M left at September's end),” Gibbs wrote in a note.

Gibbs said the prospect of more steel supply in the U.S. market will likely weigh on steel prices and maintains a Sector Weight rating for Steel Dynamics stock.

Steel Price Forecast

On Tuesday, Longbow Research lowered its 2019 HRC steel spot price target by $10 to $15/ton and is now calling for 2019 prices to range between $790 and $795/ton. The new target represents roughly 5 percent downside from 2018 average prices.

Despite the bearish adjustment, Longbow analyst Chris Olin reiterated his Buy rating and $40 price target for U.S. Steel X.

“We believe the shares are significantly undervalued, even after adjusting for potential market headwinds,” Olin said.

Sentiment Falling

UBS analyst Andreas Bokkenheuser said net sentiment for the steel group declined in the third quarter.

“Average Net Sentiment for all producers remained above global peers (possibly on account of Section 232 support), but directionally still down. We note that Net Sentiment serves as a potential leading indicator for operational performance,” Bokkenheuser wrote in a note.

He said U.S. Steel has the highest net sentiment in the quarter, followed by Steel Dynamics, Nucor Corporation NUE and AK Steel Holding Corporation AKS.

UBS has the following ratings and price targets for the U.S. steel group:

• Nucor: Neutral, $63 target.
• Steel Dynamics: Neutral, $48 target.
• U.S. Steel: Sell, $28 target.
• AK Steel: Sell, $3.25 target.

Related Links:

Seaport Global Says The Steel Industry Is Due For A Bounce

What Is A Tariff And What Does It Do?