Bank of America Views Sparrows Point Shutdown as Potentially Positive for AKS, X, STLD, NUE

Bank of America published a research report on yesterday on US Steel, noting that private RG Group's recent shutdown at Sparrows Point could be potentially positive for other companies in the steel sector. In the report, Bank of America writes, "Media reports over the long holiday weekend indicate RG Group's 3M+ t/yr Sparrows Point at least partly shut operations and issued layoff notices to employees. The mill was reportedly struggling to pay bills despite rising steel prices and lower iron ore prices in recent months. Customers we spoke with were still unclear on the status of existing orders. Sparrows may be still shipping to them, but if not, the market could tighten as buyers scramble to replace tons they had ordered. A permanent or even temporary closure of the mill, also called the “Beast from the East,” can likely help balance the oversupplied U.S. flat-rolled market." Bank of America goes on to say that, "Concern over excess sheet supply in the U.S. market has been one of our main reasons for being cautious on producers such as U.S. Steel, AK Steel, and Steel Dynamics, although we have also been wary of stretched balance sheets and pension issues. Recent price hikes would take benchmark hot rolled coil (

) sheet prices up about $150/short ton to at least $740-750/t. Our forecast remains at $740/t for H1 2012. We think the removal of Sparrows' extra tons can help support the recent price hikes, at least through the next several months. Attractively priced imported tons offered from Russia, Italy, and Korea at more than $100/t below domestic prices are available for late February and March, but until then we see potential outperformance from the group. Higher iron ore prices and a weaker dollar can be positive, while the opposite can pressure steel prices." Companies related to this report include: AK Steel

United States Steel

Steel Dynamics

Nucor Corporation