Predicting A Price Surge, Bank Of America Upgrades U.S. Steel

U.S. steel stocks have lagged the market so far in 2017, but the groundwork may be set for a strong finish to 2017. On Tuesday, Bank of America analyst Timna Tanners upgraded United States Steel Corporation X to Buy and said steel prices are headed higher in the second half of the year.

According to Tanners, reduction in Chinese production coupled with elevated demand will offset any pricing pressures that result from a disappointing resolution to the Section 232 investigation in the United States. After opening the investigation into steel imports earlier this year, President Trump recently said that a final decision on potential restrictions is not a priority for the administration at the moment.

“We’re waiting till we get everything finished up between health care and taxes and maybe even infrastructure,” Trump said in July.

Related Link: Morgan Stanley: Now Is The Time To Forge A Position In US Steel Names

Tanners said some degree of trade protection should be possible for U.S. steel producers, even if it’s not as much as investors had initially hoped.

Hurricane Harvey rebuilding could also provide a bit of a demand boost in the U.S., but Tanners said hurricanes have historically not moved the needle much.

Bank of America has raised its year-end price forecast for hot rolled coil steel by about 5 percent to $700/st.

“We think a rising steel price is not fully anticipated by steel buyers, with many holding off purchases, or investors, with the group underowned and still recovering from its wounds after Section 232 so far has disappointed,” Tanners wrote.

In addition to the new Buy rating and $31 price target for U.S. Steel, Bank of America has Buy ratings on the following domestic steel stocks as well:

• AK Steel Holding Corporation AKS ($9 price target)
• Nucor Corporation NUE ($73 price target)
• Steel Dynamics, Inc. STLD ($44 price target)
• Reliance Steel & Aluminum Co RS ($89 price target)