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U.S. Steel, Nucor Stocks Fall After Downgrade on Market Shift

'We believe there are opportunities to be more tactically positioned among the domestic steel participants,' such as U.S. Steel, Goldman Sachs says.
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Share prices of U.S. Steel (X) - Get United States Steel Corporation Report and Nucor  (NUE) - Get Nucor Corporation Report fell sharply Wednesday, after Goldman Sachs downgraded U.S. Steel to sell from neutral and Nucor to neutral from buy.

U.S. steel prices have more than doubled from historical levels in the year to date, Goldman analysts said.

“While part of this has been driven by strong demand and a lagging supply response, we believe the market may be anticipating a correction in the coming months as additional import volumes arrive and new capacity begin operations,” they said.

“That said, we believe there are opportunities to be more tactically positioned among the domestic steel participants, and we update our views to reflect a slightly more defensive positioning among the flat steel producers.”

The analysts based their U.S. Steel move on “higher capital intensity driving negative free cash flow momentum.” The Nucor change comes after its recent “outperformance.”

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U.S. Steel on Wednesday closed at $20.50, down 8.65% in the regular session. It has dropped 15% in the last three months. Nucor ended at $95.99, down 2.75% in the regular session, and has eased 2% in the past three months.

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Meanwhile, Goldman upgraded Commercial Metals  (CMC) - Get Commercial Metals Company Report to neutral from sell and Cleveland-Cliffs  (CLF) - Get Cleveland-Cliffs Inc Report to buy from neutral.

CMC’s upgrade stems from “relative underperformance and the lack of [Hot-Rolled Coil] HRC exposure,” Goldman said.

As for Cleveland-Cliffs, it has “idiosyncratic opportunities which we believe remain underappreciated,” the analysts said. Among the bullish factors: “auto contract repricing could drive upward revisions to estimated 2022 average selling prices.”

Commercial Metals on Wednesday closed at $31.53, down 0.7%, and Cleveland-Cliffs ended at $20.07, down 3.3% in the regular session.