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Steel Price Rebound Bodes Well for the Economy

Stocks in this article: NUE X

Here's what they worry about. If they buy steel when prices are high they may get stuck with excessive inventory they'll have to sell for a loss if prices and the economy were to suddenly tank.

Industry sources have been saying the current causes of the supply shortage and the spiking price of steel may continue into the fourth quarter of this year.

An example of why is the situation in Ontario, Canada, at a mill owned by U.S.Steel (X).

The company has an ominous sell recommendation from the research department at TheStreet.com.

U.S. Steel's share price hasn't done as well as Nucor's, as you can see in the comparative chart below. It's interesting to notice the similar share price patterns for both companies.

X Chart X data by YCharts

At X's Lake Erie, Ontario, mill 1,000 workers are now in the third month of a labor lockout after management failed to negotiate a new contract. This is a mill that can produce over two million tons of steel per year, so this strike is a big deal for the American steel buyers who are the main customers.

Some of the steel price jump can be attributed to seasonal factors. Summer is when a lot of steel is used because it's the peak building season. Another positive price factor may be that U.S. steelmakers may see diminished overseas imports.

Earlier this week a group of American steel producers filed a trade complaint with the International Trade Commission over imports from nine countries of various and sundry steel products. The complaint is mainly about foreign steelmakers receiving unfair subsidies that enable them to sell below cost.

Getting back to NUE, it will report earnings on July 18 before the market opens. It will be followed by a live conference call with host Chief Executive Officer and President John Ferriola.

The Nucor event will be available on the Internet on July 18 at 2 p.m. EDT. It should be interesting to hear how the company addresses the benefits and challenges of steel's pricing rollercoaster.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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