Thursday, July 25, 2019

Steel Dynamics Hoping To Put A Rough First Half Behind It

I’ve been relatively bearish on the outlook for U.S. steel companies this year, and so far that call has mostly worked out, with earnings coming in lower than initially expected for both the first and second quarters. While Steel Dynamics (STLD), Nucor (NUE), U.S. Steel (X), and Commercial Metals (CMC) are all up on a year-to-date basis, their performance has lagged the broader markets and the industrial sector. More specific to Steel Dynamics, while I thought this one looked a little better than Nucor from a valuation perspective last quarter, I thought Nucor had a better product mix for the near term conditions, and the share price performances have been pretty similar.

Both Nucor and Steel Dynamics managements are more bullish than I am about their second-half prospects. I see the key non-residential construction market continuing to slow (still growing, but a decelerating rate), I’m not optimistic about a big recovery in auto volumes, and I see more risk of inventory destocking across machinery and manufacturing leading to more sluggish steel demand growth. Although Steel Dynamics’ valuation isn’t bad, I see more downside risk to expectations and performance than upside risk, and I’m inclined to stay on the sidelines with U.S. steel companies.

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Steel Dynamics Hoping To Put A Rough First Half Behind It

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