Two research firms disagreed on the outlook for global steel prices, with Credit Suisse predicting that prices will rise further over the next few months and Deutsche Bank predicting that the upward trend probably won't continue.
BULLISH TAKE: Steel prices have risen in the past several weeks and U.S. steel prices will probably continue to rise through the end of the second quarter, according to Credit Suisse analyst Curt Woodworth. The analyst cites growing demand and a number of other factors, including reduced Asian production and U.S. trade restrictions, which he sees keeping a lid on U.S. steel imports. The current price increases represent "a normal rebalancing" following a downturn in 2015 which was triggered by weak energy markets and low price exports from China, Woodworth believes. However, the "real test" for the sector will be whether Chinese infrastructure spending and real estate construction improves in the second half of the year, Woodworth wrote. He continues to identify U.S. Steel(X) - Get Report and Steel Dynamics(STLD) - Get Report as his top picks, saying that they have the highest leverage to flat rolled steel, which should be boosted in 2016 by much higher volumes and continued import restrictions.
BEARISH TAKE: Despite the rally in commodity prices this year, the trend is unlikely to continue, as supplies of most commodities still need to be reduced, contended Deutsche Bank's Jorge Berstain. Moreover, the recent price increases could cause the supply cuts to take longer to achieve, warned Berstain. He cut his 2016 iron ore price outlook by 4% to $44 per ton, and downgraded steel makers Nucor(NUE) - Get Report and Reliance Steel(RS) - Get Report to Hold from Buy. The analyst kept Sell ratings on U.S. Steel and AK Steel(AKS) - Get Report , saying that the companies' debt levels remain high.
PRICE ACTION: In morning trading, U.S. Steel fell 2% to $15.28, Steel Dynamics was flat at $22.16, Nucor lost 0.7% to $46.26 and Reliance Steel gave back 0.5% to $68.79.
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