Analyst Warning: U.S. Steel Will Cut Full Year EBITDA Guidance

United States Steel Corporation X is set to release its 1Q16 results on April 26 after market close. Axiom’s Gordon L. Johnson maintained a Sell rating for US Steel, with a price target of $5, saying that the company is likely to announce a reduction in its full-year EBITDA guidance.

US Steel’s shares have jumped 128.7 percent YTD, outperforming Axiom’s custom value-weighted Steel Mill OEM Index, which has risen 45.8 percent, and the Axiom Industrial Equipment OEM Index, which is up 20.9 percent over the same timeframe. The company’s shares have also outperformed the broader market, with S&P 500 up merely 2.1 percent YTD.

Strength in China Metals Prices

China witnessed a record CNY6.5bn expansion in credit in 1Q16. Many expect this to provide incremental tailwinds “to the already robust commodity rally.” Analyst Gordon Johnson pointed out, however, that on April 22 it was revealed that China had raised the trading commission or cost for certain metal futures, and subsequently forward rebar-prices, iron-ore-prices, and copper-prices all traded limit-down.

Johnson added that this represented “the most severe drop in rebar futures in over one month,” and suggests that the rally in metals price rally in China is on account of “speculation rather than real end-market demand.”

The analyst added that steel prices in China are “right ahead of a correction lower,” rendering US Steel’s shares “particularly vulnerable.”