Latest research by Barclays PLC (NYSE:BCS), deriving from global steel production data for the month of July, points to a near-term positive outlook for U.S. steelmakers, under-pinned by favorable factors continuing to work in their favor. Global steel production has declined across the globe in July, primarily due to lower production in Europe and Asia.
However, in the US, steel prices have maintained an upward trajectory from about $590/t in July, to currently about $660/t, and this is significant given that weekly US utilization rates for steel in the month of August is far above that seen any time in July, giving rise to a cautious view that demand softness may be a thing of the past, at least temporarily. Another bullish factor for US steel makers is the widening gap between US steel prices and those prevailing in China – the difference (in favor of the US for HRC) was $60/t a month ago, but has now climbed to $170/t as domestic prices in China are pressured by firm production levels, even in the face of lower prices. This provides an inherent import shelter to the industry and support to domestic steel prices in the US – all positives for steel players such as AK Steel Holding Corporation (NYSE:AKS), Nucor Corporation (NYSE:NUE), Steel Dynamics, Inc. (NASDAQ:STLD), and United States Steel Corporation (NYSE:X).
According to Barclays, the scenario is loaded more in favor of the integrated plants [AK Steel Holding Corporation (NYSE:AKS) and United States Steel Corporation (NYSE:X)], versus the mini steel plants [Nucor Corporation (NYSE:NUE) and Steel Dynamics, Inc. (NASDAQ:STLD)].
Accordingly, Barclays ranks AK Steel Holding Corporation (NYSE:AKS) as Overweight/Positive, and the other three steel-makers as Equal Weight/Positive.
Barclays placed a price target of $7.00 on AKS in June, and the share is currently trading at $5.96, up 3.11 percent today. The company reported $0.10 earnings per share for its latest quarter, beating consensus estimates of $0.05 by $0.05, though revenue was down 14.1% compared to the same quarter last year.
Nucor was given a price target of $38 on June 12, and is already trading today at $40.65, up 1.09%. It posted a second-quarter profit that missed analysts’ estimates due to falling prices.
Steel Dynamics has a PT of $14.00 since July 24, and is being traded today at $13.39, up 1.4%. It reported 2nd quarter 2012 earnings of $0.20 per share.
US Steel was forecast at $23.00 on July 31, and is already trading today at $23.11, up 1.94%. The company had reported Q2 earnings that beat analyst expectations, due to rising demand for flat and tubular products.