The recent parabolic rise in steel prices caught pretty much everyone by surprise … and if you disagree with that, I’d point to the fact that roughly a quarter of U.S. steel capacity is still offline despite hot-rolled coil prices exceeding $1,000/st for several weeks. Still, fortune favors the prepared, and Nucor (NUE) is going to reap the benefits of this unexpected mini-boom in the first half of 2021 before what I expect will be a sharp correction as the restocking cycle ends and new capacity comes online.
When I last wrote about Nucor in August of 2020, I wrote that while I did still think the stock was undervalued and offered some upside, I preferred names like Steel Dynamics (STLD) and Ternium (TX) and that a more robust steel price environment would favor inferior names. Since then, Nucor has gone up about 35%, lagging Steel Dynamics’s 40% rise, Ternium’s 81% rise, and U.S. Steel’s (X) (one of the aforementioned “inferior operators”) 145% rise.
Nucor is currently trading at what I estimate to be around 3x on a spot-EV/EBITDA basis, and that’s a pretty fair peak-of-cycle multiple. I do still see a little upside from here (to around $60) and these higher prices could stick around a little longer (especially if I’m wrong/too bearish on non-resi activity), but I think buying a steel company at/near record steel prices is not generally going to work out.
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