Analyst Sees Steel-Dumping Case On Horizon, Launches Sector Coverage

U.S. steel producers are likely to file dumping charges against China following the release of their first-quarter results, an analyst said Monday.

"But it's often a regulatory 'whack-a-mole' game," Clarkson Capital's Lee McMillan said. "Cheap steel is notoriously difficult to keep out of the country."

Despite his expectation of continued low steel prices, McMillan launched coverage on eight steel makers Monday with no less than four Buy ratings.

Key to picking winners: exposure to the U.S. automotive and construction industries.

Citing those factors, McMillan offered Buy recommendations on ArcelorMittal SA (ADR) MT, AK Steel Holding Corporation AKS Nucor Corp. NUE and Tata Steel Ltd.

Steel makers that rely on the oil and gas industry, which typically accounts for 10 percent of U.S. steel demand, are likely to be in a rut for awhile, McMillan said.

Rating a Sell: United States Steel Corporation X for its high fixed costs and reliance on the U.S. energy sector.

McMillan is on the fence mostly over valuation with Hold ratings on Commercial Metals Company CMC, Reliance Steel & Aluminum RS and Steel Dynamics, Inc. STLD.

With Chinese Steel consumption down more than 7 percent in the first two months of 2015, McMillan said imports will continue to depress U.S. steel prices.

China produces about half the world's steel and consumes about 48 percent. Much of its remainder ends up on the U.S. market.