These remain tough days for the steel sector. Although
protectionist policies and healthy end-markets have significantly
improved the price environment for U.S. producers like Steel Dynamics (STLD), Nucor (NUE), and ArcelorMittal (MT),
prices have softened and meaningful capacity expansions are now on the
board. With Steel Dynamics planning the biggest expansion so far
announced, there are renewed risks that this marks the peak of the
cycle, even though the capacity expansion makes a lot of sense for the
company for the long term.
When I last wrote about
steel stocks in late September, I was concerned that the risk/perception
of peaking steel prices and EBITDA would make it difficult for these
stocks to get ahead, even though I thought Nucor looked a little too
cheap relative to Steel Dynamics and other steel stocks. Since then,
both stocks have weakened further, but Nucor has noticeably outperformed
Steel Dynamics over that limited time period. The nearly 25% pullback
in Steel Dynamics does make the stock more interesting today, and the
“stronger for longer” bull argument could still prove valid, but this
looks like a tough place to earn market-beating returns.
Read more here:
Steel Dynamics Getting No Love Despite Excellent Margins And Cash Flow
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