Hot-rolled steel coil prices are in full swing in the process of economic recovery, and the heat has spread to steel inventories. U.S. Steel (stock code: X-US) and Cleveland Cliffs (CLF-US) this year’s gains are respectively twice and three times the 15% of the S&P 500 index, while Nucor (NUE-US) has risen Nearly 80%. Credit Suisse analyst Curt Woodworth released a report on Wednesday that the stock market will not cool down anytime soon.
Production and supply are tight, and the benchmark price of the hot rolled coil industry has risen from US$500 in the same period last year to US$1,600 per short ton. Many industry analysts downgraded their ratings to hold because they reviewed how the industry’s past austerity policies proved how short the industry’s lifespan is once imports collapse. Woodworth believes that today's upward cycle will last for several years-therefore, investors should reassess the stock and give it a higher multiple.
Even at today's $93 appreciation price, Nucor's stock may have nearly 25% upside potential than Woodworth's target price of $115. Steel Dynamics (STLD) and Graftech International (EAF) have about 45% upside from his target, and he believes that U.S. Steel may rise by more than 80% from today's $22 level. He rated all these stocks as outperformers, just like his evaluation of Cleveland-Cliffs, he believes that the stock has risen by a third from its price of $21.
Credit Suisse analysts said that due to the depreciation of the U.S. dollar and China's control of polluting furnaces, imports will continue to be sluggish. As the capacity of electric arc furnaces gradually increases, domestic supply will only rise slowly.
Woodworth predicts that by 2022, demand from automakers and renewable energy developers will push up the price of hot rolled coils, far above the $1,000 level by 2022. At such a price, the steel business will be profitable (0.2245, 0.00, 0.00%). Even if the steel price in 2022 falls below $1,000, based on his profit expectations, today's stock price is also very cheap.
Based on industry history, Woodworth believes that Wall Street disagrees with the sharp adjustment in steel prices. But he wrote that this is a new normal.
Hot-rolled steel coil prices are in full swing in the process of economic recovery, and the heat has spread to steel inventories.
Post time: Jul-09-2021