U.S. steel stocks mostly fell on Wednesday as profit-taking from big previous session gains won out over a bullish sector upgrade from Credit Suisse.
CEOs John Ferriola from Nucor (NUE) - Get Report and AK Steel's Roger Newport reiterated at a Commerce Department hearing that China's and other state-supported steel industries threaten the U.S. steelmakers. They urged policies to defend domestic companies be put in place.
On the research front, Credit Suisse lifted the sector to overweight from underweight based on expectations that prices will bottom this summer and begin to rebound in the third quarter.
The bank upgraded Nucor to outperform from neutral and set a $68.00 price target, up from $56.00. It said Nucor's fundamentals are improving and that it should benefit from anticipated infrastructure spending.
It raised Steel Dynamics' shares to outperform from neutral and raised its price target to $43 from $36, saying its margins are stable. And, it added, "trade support should yield higher through the cycle metal spreads, and we view Steel Dynamics as the most capital efficient US steel company."
Also, the firm upgraded U.S. Steel (X) - Get Report to outperform from neutral as well and raised its price target on the iconic company's shares to $29 from $25. U.S. Steel was a rare sector winner, adding 0.8%
Nucor ended flat, AK Steel (AKS) - Get Report fell 3%, Reliance Steel (RS) - Get Report fell 0.7%, Timken Steel (TMST) - Get Report fell 2.1%, Steel Dynamics (STLD) - Get Report fell 0.8% and Olympic Steel (ZEUS) - Get Report fell 3.7%.
As measured by the Market Vectors Steel ETF (SLX) - Get Report , the steel industry has been under pressure lately. The ETF is down 11.5% over the past three months. However, it's down just 2% in 2017, and notably, it's still up more than 50% over the previous year.
This group had rallied on Donald Trump being elected president. The thought was that big infrastructure projects would be a boon for business, while Trump would take a hard stance on steel dumping from China. Neither catalyst materialized though, according to The Street founder and manager of the Action Alerts PLUS portfolio manager Jim Cramer on CNBC Wednesday morning.
U.S. Steel is up 11% in the past three trading sessions but is still down 34% on the year. However, the company remains "very challenged" and has a high-cost structure, Cramer said. Volatility remains high too, as shares are still up 60% over the past year.
Nucor has been less volatile and has a lower cost structure. It's one reason Cramer likes it for the Action Alerts PLUS portfolio. This is a very bifurcated group, he concluded.
Last month U.S. Commerce Secretary Wilbur Ross said that the results of an investigation he launched would determine if Chinese and other foreign-made steel poses a threat to U.S. national security.
In April Trump signed an executive order calling for a look at steel imports and any threats foreign steel amplified for the U.S.
At that announcement, Ross said 26% of the steel America uses comes into the country at unfairly low prices.