Morgan Stanley Upgrades US Steel, Sees Near-Term Bounce In Steel Prices

Steel stocks have taken a beating in the past year, but one Wall Street analyst said Monday a seasonal ramp in U.S. steel demand should help boost prices in the near-term.

The Analyst

Morgan Stanley analyst Piyush Sood made the following changes to his steel coverage:

AK Steel Holding Corporation AKS downgraded from Overweight to Equal-Weight, price target cut from $5 to $3.
United States Steel Corporation X upgraded from Underweight to Equal-Weight, price target cut from $30 to $21.
Cleveland-Cliffs Inc CLF reiterated at Equal-Weight, price target cut from $10.50 to $10.
Commercial Metals Company CMC reiterated at Equal-Weight, price target cut from $26 to $21.
Nucor Corporation NUE reiterated at Equal-Weight, price target cut from $73 to $62.
Schnitzer Steel Industries, Inc. SCHN reiterated at Underweight, price target cut from $26 to $22.
Steel Dynamics, Inc. STLD reiterated at Overweight, price target cut from $52 to $42.

The Thesis

Market dynamics should stabilize steel prices and most steel stocks in the first half of 2019, Sood said. However, he wouldn’t be surprised to see downward pressure on steel prices resume in the second half of the year.

“As tariffs are eased further in 2019 and supply/imports increase, steel prices will once again come under pressure, beginning in 2H19,” Sood wrote in a note.

He said buyers have mostly stayed on the sidelines in recent in anticipation of lower prices down the road. That dynamic drove hot rolled coil steel prices down from a peak of $920/t in summer 2018 to recent levels of between $640/t and $690/t. Morgan Stanley forecasts late Q1 and Q2 HRC prices of around $700/t driven in part by China stimulus demand.

In the longer term, the firm is forecasting 2020 and 2021 HRC prices of $660/t and $640/t, respectively.

Price Action

Here’s how the steel stocks mentioned reacted to the new commentary Monday:

U.S. Steel was down 0.1 percent.
Steel Dynamics was down 0.4 percent.
Schnitzer Steel was down 2.4 percent.
Nucor was down 1.2 percent.
Commercial Metals was down 1.1 percent.
Cleveland Cliffs was down 1.9 percent.
A.K. Steel was down 6.4 percent. The company reports fourth-quarter earnings Monday afternoon.