TipRanks

Notifications

Is the Steel Industry In Trouble?

Initial March steel import data has been released, and Axiom Capital Research analyst Gordon L. Johnson is not convinced that the slight data surge is a good thing. The data shows a +7%/+36% MoM/YoY change, which is the highest monthly imports since October 2006. However, “The data show Mar. ’14 had the highest monthly import of steel since Oct. ’06, & further support our contention that the recent strength in U.S. HRC prices, largely on the back of price hikes by the U.S. mills aimed at ‘stopping the bleeding’ – prices fell -9% from 1/1/14 to 3/20/14 (price declines of this magnitude are typically followed by price hikes form the U.S. mills in an attempt to stop prices from falling further) – could cause another re-rating lower in prices over the next 1-2 months.” Gordon thinks that this “implies growing risk to steel group fundamentals,” and he still recommends Steel (X) as a top SELL.

Gordon J

Using weekly import data from the U.S. DoC’s Steel Import Monitoring and Analysis System (or SIMA), Gordon noticed, “On the heels of surging imports since the start of CY14 (Figure 1), we note that Mar. imports have surpassed the previous high-point of 2.98mn MT, set in Jul. ’07 (since ’05, the all-time high was 3.52mn MT registered in Oct. ’06). Moreover, with the first three months of the year now in, we highlight that C1Q14 YTD imports (at 9.02mn MT in 1Q14) mark the highest YTD level since C1Q06 (C1Q14 data are 11.4% lower than the 10.18mn).”

Gordon believes that there will be a continued rise in imports because historically, “we find imports typically increase when U.S. steel prices, measured as a spread to international prices, trade >$100/MT.” If this continues, Gordon thinks that the steel/iron ore complex will undergo severe price pressures. And because of this, Gordon recommends SELL US Steel (X), Joy Global (JOY), Cliffs Natural Resources (CLF), Rio Tinto (RIO), and AK Steel (AKS), emphasizing, “these vendors are right ahead of an acute re-rating lower.”

Gordon also recommends BUY JA Solar Holdings Co. (JASO).

To continue following Gordon to see if these recommendations help strengthen his portfolio, download TipRanks and start making informed financial decisions with advice you can trust.

Gordon is ranked number 2 out of 2480 analysts, with a +13.3% average return and a 73% success rate of recommended stocks.

Leave a Reply

Leave a Reply