Tight supplies push steel prices Hot-rolled steel coil prices sizzled in the recovery and the heat ignited steel inventories.
United States Steel
and
Cleveland cliffs
are up two and three times the 15% gain of the S&P 500 this year, respectively, while
Nucor
is up almost 80%. And, as Credit Suisse analyst Curt Woodworth sees, steel stocks aren’t cooling anytime soon.
The tight supply raised the benchmark price for hot-rolled coils to $ 1,600 per short ton, from $ 500 a year ago. A number of analysts downgraded their rating to Hold, recalling how quickly imports have collapsed during periods of tight supply in the past. But Woodworth believes the current bull cycle will last a few more years and investors should price stocks higher multiples. “The rebirth of the American steel industry is a real event,” he wrote in a note.
At $ 97 a share today, Nucor’s stock is up nearly 20% from Woodworth’s target price of $ 115.
Steel dynamics
and
Graftech International
have about 45% up from its targets, while United States Steel could rise 80% from the current $ 24 and Cleveland Cliffs a third from $ 22. He rates all of these stocks as outperforming.
Imports will remain low, he says, due to the cheap dollar and China’s restriction on polluting blast furnaces. Domestic supply will increase slowly, he adds, thanks to an increase in the capacity of electric arc furnaces. Demand from automakers and renewable energy developers will keep hot-rolled coil prices well above $ 1,000 until 2022. Steelmakers can make big profits at these prices, if not lower.
Woodworth believes Wall Street is accounting for a sharp correction in steel prices. But there is a new normal, he writes. “Steel stocks are particularly cheap.”