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5 Red-Hot Steel Stocks to Buy as HRC Prices Zoom Past $1,700

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Steel prices continue to race ahead, hitting new highs thanks to an upturn in demand across key markets, tight supply conditions, higher raw material costs and low steel supply-chain inventories.  

Notably, U.S. steel prices are on a tear underpinned by strong underlying supply and demand fundamentals. The benchmark hot-rolled coil ("HRC") prices recently shot past the $1,700 per short ton level for the first time as the bull run continues, and looks set for further upside. According to Fastmarkets MB, U.S. HRC index was $1,754.80 per ton on July 2.

Notably, HRC prices have shot up nearly fourfold from the August 2020 low of $440 per short ton. There is room for further gains in HRC prices as demand continues to outpace supply. The price rally is expected to continue in the third quarter of 2021 as the fundamental driving factors remain firmly in place.

A key reason behind the unprecedented surge in U.S. steel prices is the demand-supply imbalance. Amid surging demand, supply remains restricted due to production disruptions. This coupled with lower steel imports due to the hefty Section 232 tariffs have tightened steel supplies. Prices of ferrous scrap, the main raw material for electric-arc furnace steel producers, also remain elevated amid tight supply. Moreover, extended lead times for steel delivery at U.S. steel mills indicate healthier demand.

A strong rebound in demand has also led to a sharp recovery in the U.S. steel industry capacity utilization rate. U.S. capacity utilization rate broke above the important 80% level in late May 2021 for the first time since the start of the pandemic in March 2020, and is currently hovering above that level.

China’s steel prices have also spiked so far this year on the back of strong domestic demand. Moreover, global steel prices are moving up on higher demand and supply constraints. Higher prices bode well for the profitability of steel companies. Notably, major U.S. steel companies recently provided an upbeat profit outlook for the second quarter of 2021 based on strong demand and higher prices. These companies are likely to gain from spread expansion as a significant spike in steel prices has more than offset higher raw material costs.

Meanwhile, an upswing in industrial activities is driving demand for steel. Steel demand has picked up with the resumption of operations across major sectors such as automotive, construction and machinery following easing of lockdowns and restrictions across the word. Notably, automotive and construction together account for a big chunk of steel consumption.

Moreover, an upturn in construction and manufacturing activities is driving demand for steel in China, the world’s top consumer of the commodity. Steel demand is being driven by the China government’s infrastructure spending spree to rev up its economy.

The World Steel Association ("WSA") envisions overall steel demand to rise 5.8% in 2021 to 1,874 million tons after edging down 0.2% last year. The forecast assumes a steady progress on vaccinations enabling a gradual return to normality across the major steel-consuming nations. The WSA expects steel demand to increase 3% in China this year.

Meanwhile, President Biden and a bipartisan group of senators reached a $1.2 trillion framework infrastructure deal on Jun 24. The planned investment includes $579 billion in new federal spending aimed at building up America's "crumbling" infrastructure. The plan will see spending on rebuilding and repairing roads and bridges, modernizing and expanding transit and rail networks, upgrading power infrastructure, constructing a network of electric vehicle chargers and improving the country's broadband system.

The U.S. steel industry has been urging for an infrastructure package since the early days of the pandemic as it will put more Americans back to work and create a path forward for growth. The sizable infrastructure spending would have a beneficial effect on the American steel industry given the expected increase in consumption of the commodity that is used to make almost everything from rail tracks to roads to bridges and tunnels.

5 Steel Stocks to Snap Up

Strong demand and zooming steel prices have put the steel industry on a firm footing. Strong fundamentals make the steel space an attractive area to invest in right now. The industry is poised to run higher on the back of strong market conditions, aided by a demand upsurge across major end-markets and soaring steel prices.

Here we pick five steel stocks with Zacks Rank #1 (Strong Buy) that are good options for investment right now.

You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcelorMittal MT): Luxembourg-based ArcelorMittal is witnessing a rebound in demand, especially in automotive, following the easing of lockdown measures. The company also remains focused on maintaining a competitive cost advantage and strategically growing through high-return projects in high-growth markets. It is expanding its steel-making capacity and remains focused on shifting to high-added-value products. Its cost-reduction initiatives will also support profitability.

ArcelorMittal has an expected earnings growth rate of a whopping 1,229.9% for the current year. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 27.8% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 52.3%. The stock has also surged roughly 178% over a year.

Nucor Corporation NUE: Charlotte, NC-based Nucor is gaining from strength in the non-residential construction market and a strong recovery in the automotive market. It is also seeing improved conditions in heavy equipment, agriculture and renewable energy markets. Higher demand is supporting its shipments. Nucor should also gain from considerable market opportunities from its strategic investments in its most-significant growth projects.

Nucor has an expected earnings growth rate of 386.2% for the current year. The consensus estimate for the current year has been revised 48% upward over the last 60 days. It has seen its shares shoot up around 134% over the past year.

United States Steel Corporation X: Pennsylvania-based U.S. Steel is benefiting from strong demand across end markets and higher domestic steel prices. It is witnessing strong consumer-driven demand and pent-up infrastructure demand. The investment in Big River Steel is also expected to be accretive to U.S. Steel’s earnings and will generate significant synergies. Cost-saving initiatives and efforts to improve operation efficiency should also drive its results.

The company has expected earnings growth of 332.1% for the current year. The Zacks Consensus Estimate for the current year has been revised 146.4% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 24%. The stock has also shot up roughly 248% over the past year.

Steel Dynamics, Inc. STLD: Based in Indiana, Steel Dynamics is benefiting from momentum across the automotive and non-residential construction sectors. Higher prices aided by strong demand are also expected to drive the profitability of its steel operations. Steel Dynamics is also currently executing a number of projects that should add to capacity and boost profitability.

The company has expected earnings growth of 352.8% for the current year. The consensus estimate for the current year has been revised 57.8% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 10.5%. The stock has also surged roughly 137% over the past year.

Olympic Steel, Inc. ZEUS: Ohio-based Olympic Steel is gaining from its strong liquidity position, actions to lower operating expenses, and strength in its pipe and tube and specialty metals businesses. Moreover, improving industrial market conditions and a rebound in demand are expected to support its volumes.

The company has an expected earnings growth rate of 1,116.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 51.6% upward over the last 60 days. The company has also surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average being 38.7%. The stock has also surged roughly 185% over the past year.

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Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
 
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