American steel company Nucor Corporation NUE is raising steel prices this week, and analysts are mixed on whether or not Nucor is a buy.
What Happened
Nucor announced Tuesday that it's upping the price of flat-rolled steel by $40 per ton, the first time it has raised prices since February. The price increase applies to hot-rolled coil, cold-rolled coil and hot-dipped galvanized steel.
Why It’s Important
The price hike may seem like good news for steel demand and the U.S. steel market, but it comes on the heels of
United States Steel Corporation X's announcement that it's idling two of its blast furnaces and reducing its capacity by between 200,000 and 225,000 short tons per month, according to Argus Media.
Those capacity reductions came in response to persistently low U.S. steel prices.
U.S. Steel also announced a $40/t price hike on HRC pickled and oiled, CRC and HDG steel at its USS-POSCO joint venture finishing mill in California.
Editor's note: This story has been corrected to reflect that U.S. Steel, not Nucor, is idling two blast furnaces.
Steel Prices Falling In 2019
Jefferies analyst Martin Englert said it’s likely that other U.S. steel producers will follow suit in raising prices as the industry attempts to prop up the market and improve investor sentiment. The last attempt to boost the market via price hikes back in January and February fell flat. After Nucor raised prices by $80/st to start the year, steel prices plummeted by $180/st in the months that followed. In fact, HRC prices have dropped for 12 consecutive weeks to $521.75, according to Argus.
President Donald Trump tweeted in May that the U.S. steel industry is “booming” thanks to his tariffs on imported Chinese steel.
Investors are certainly not feeling the boom: the VANECK VECTORS/STL ETF SLX is down 17.4% since the beginning of 2018.
What’s Next
Englert said Tuesday that the price increase is a step in the right direction, and the analyst includes Nucor and U.S. Steel among his top stock picks in the space.
Other analysts, such as Bank of America's Timna Tanners, have said investors should stay away from Nucor due to concerns of a persistent steel supply glut in 2020 and 2021.
Investors will be watching steel prices and steel stocks closely to see if the price hike was the spark the industry desperately needed.
Nucor shares were up 0.17% at $54.39 at the time of publication Wednesday.
Related Links:
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