Steel Dynamics Holding Up Through Tough Demand Conditions

I wasn’t bullish on the prospects for the U.S. steel sector when I last wrote about Steel Dynamics (STLD) and Nucor (NUE), and the additional destocking and steel price weakness that I expected back then has in fact taken place. While both Steel Dynamics and Nucor saw nasty declines into late August, the share prices have since recovered, reducing the incremental declines in the share prices to the low single digits.

As the market gets more realistic about the real health of the steel market (and the U.S. industrial economy), I get a little more bullish on Steel Dynamics, as this earning cycle has seen another $165 million come out of the average sell-side 2019 EBITDA estimate and about $225M come out of the 2020 number (after roughly $100M adjustments back during second quarter earnings). I’m still concerned about the health of the U.S. economy, the prospects for an end to the U.S.-China trade dispute, and potential competitive capacity additions, but were Steel Dynamics to take another trip toward the mid-$20’s, I’d have to consider picking the shares as a cyclical trade idea.

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Steel Dynamics Holding Up Through Tough Demand Conditions