U.S. Steel Corp. (X) - Get United States Steel Corporation Report shares slumped lower Wednesday after analysts at Goldman Sachs published a sector note that lower price targets on many major producers in advance of a potential steel price correction.
Goldman Sachs analyst Emily Chieng lowered her price target on the U.S. Steel to $21 a share, while cutting the group's rating to "sell" from "neutral', in a major sector update that included price target cuts for Steel Dynamics (STLD) - Get Steel Dynamics, Inc. Report, Nucor (NUE) - Get Nucor Corporation Report and Cleveland-Cliffs CLF, which Chieng upgraded to "buy" from "neutral".
Hot-rolled coil steel (HRC) prices are around 140% north of their historical levels this year, Chieng noted, at around $1,500 per ton, driven by stronger industrial 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," Chieng wrote. "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."
U.S. Steel shares were marked 8.2% lower in late-morning trading Wednesday to change hands at $20.60 each. Nucor shares were marked 4.3% lower at $94.45 each while Cleveland-Cliffs fell 4.8% to $19.77 each.
"Like the rest of the sector, Cleveland-Cliffs shares have underperformed the S&P500 in the last month ... we believe that this underperformance is unwarranted, given continued execution against deleveraging targets, strong free cash flow generation, and potential upside risk to 2022 average selling prices," Chieng wrote.
Last month, U.S. Steel forecast record third quarter profits and unveiled plans for a new $3 billion mill that will start producing in 2024.
U.S. Steel said it expects adjusted current quarter profits of around $2 billion, a 50%-plus increase from the prior period, adding it's reduced its overall debt by around $2.7 billion so far this year, excluding that linked to its 2019 acquisition of Big River Steel.
MO Capital Markets analyst David Gagliano said at the time that U.S. Steel's new mill plans "does raise the risk of another wave of longer-term US capacity additions, putting a dent in the 'higher-for-longer' thesis (for broader steel prices)."