Bank of America has cut its forecast for U.S. steel prices and dialed back its earnings expectations for American steel stocks across the board.
On Wednesday, Bank of America analyst Timna Tanners cut her price target for U.S. hot-rolled coil in the second half of 2019 from $628 per short ton to $572. Tanners also issued the following 2019 EPS cuts for popular U.S. steel stocks:
- Commercial Metals Company (NYSE: CMC) cut from $2.05 to $1.95.
- Nucor Corporation (NYSE: NUE) cut from to $4.65 to $4.60.
- Reliance Steel & Aluminum Co (NYSE: RS) cut from $9.20 to $8.99.
- Steel Dynamics, Inc. (NASDAQ: STLD) cut from $3.25 to $3.19.
- United States Steel Corporation (NYSE: X) cut from 79 cents to 75 cents.
“On Q2 calls, mills were constructive on demand improving in H2E, but we see risk of weaker volumes and prices, based on our channel checks and recent macro data,” Tanners wrote in a note.
No Major Catalysts Ahead
Fortunately, Tanners said steel prices could find some near-term support from planned maintenance outages at major mills in coming months. While lower imports would theoretically boost domestic demand, Tanners said many buyers loaded up on inventory after producers announced price hikes over the summer. She said slowing economic growth in China also runs the risk of flooding the market with excess steel given China increased its production by 10% in the first half of the year.
Looking ahead, Tanners remains pessimistic about the steel group given more supply cuts are likely in the cards. Bank of America’s top picks in the group are Neutral-rated Reliance and Steel Dynamics.
A Neutral rating is far from a vote of confidence. Buying shares of Reliance or Steel Dynamics at this stage could be akin to buying the best house in a bad neighborhood.
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