Goldman Sachs Upgraded Steel Sector from Cautious to Neutral

In a report published Monday, Goldman Sachs analyst Sal Tharani upgraded the coverage view for the steel sector form Cautious to Neutral based on optimism of steel demand. Tharani noted that the supply demand for steel has gained appeal, especially for flat steel. Further, the analyst commented on iron ore costs, “our very bearish view on input costs (iron ore) bodes well for steel producers in the long run as we believe that mills should be able to expand margins as raw material prices descend.” Goldman Sachs is optimistic on steel demand in “auto, energy, low US natural gas price induced demand from LNG, chemical and power sectors.” The analyst added that a new OCTG capacity in the US could also be a major source of demand for flat steel. Upgrades:

• Tharani upgraded United States Steel Corp. X from Sell to Buy and increased the PT from $22 to $30 based on flat steel leverage and cost cutting. Shares rose 4.92% to create a new 52-week high of $27.05 after the upgrade.
• Goldman Sachs upgraded AK Steel Holding Corporation AKS from Sell to Buy and raised the PT from $3 to $6 as the analyst reported that the new iron ore strategy is not priced in and expects the company to see notable margin expansion. After the upgrade, shares rose 11.07% to $5.11.
• Tharani upgraded Steel Dynamics Inc. STLD from Neutral to Buy based on recovery in the non-residential construction market and the successful execution of the Mesabi Nugget project. The analyst increased the PT from $17 to $22. Steel Dynamics closed at 18.80 and is currently trading +1.95%

Downgrades:

• Goldman Sachs downgraded Reliance Steel & Aluminum Co. RS from Buy to Neutral as Steel Dynamics has higher upside potential and RS “appears to be fully valued.” The analyst raised the PT from $80 to $82. RS closed at 74.40 on Friday.