The U.S. steel industry saw better operating conditions in the third quarter than I'd expected, due in part to auto OEMs and suppliers restocking their inventories and also due to a somewhat unusual level of discipline among market participants that has kept more capacity offline. With its very efficient operating assets, Steel Dynamics (STLD) has been able to stay active when others haven't, allowing the company to benefit from better sheet prices.
I'm still cautious on the sector going into 2021, though. I do expect non-residential demand to weaken and oil/gas demand to stay weak. Auto demand should be better, but with more than a third of industry sheet capacity offline, I believe pricing power could be at risk as these higher prices will, ultimately, coax some restarts.
I've liked Steel Dynamics for a little while, but with the shares up more than a third since my April article, I see STLD shares as more of a "hold" than a "buy", and my preferences lean more towards names like Acerinox (OTCPK:ANIOY) and Ternium, as well as non-steel names like Alcoa (AA). While I do still believe this is an absolute top-notch player in the space, I don't like the combination of potentially weaker non-resi demand and oncoming supply increases (both reactivated capacity and new capacity).
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