The steel market has not only stayed stronger than I expected early in the second half of the year, it’s gotten even stronger as high prices and limited capacity growth have done nothing to temper buyers’ demand for steel. That’s created windfall opportunities for Steel Dynamics (STLD), one of the best operators in the world, and one with leverage to near-term capacity growth.
Steel Dynamics shares are up more than 60% since my bullish call in February, and while Nucor (NUE) has done even better (up more than 90%), as has Ternium (TX), which I own, most others, including ArcelorMittal (MT), Cleveland-Cliffs (CLF), and U.S. Steel (X) have lagged (though the 40%-plus performance of Cleveland Cliffs, the weakest of the three, is hardly bad).
Given remarkable, and frankly unprecedented, restraint and discipline among industry participants, I believe pricing can stay strong into 2022, though I do expect prices to come back down to around in 2022. My blended EBITDA valuation approach suggests that the shares should trade around $70, but I could still argue for upside toward $80 today.
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Steel Dynamics Thriving As Efficient Operations Meet Record Prices
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