MT Shares Downgraded At Jefferies, Sees Steel Price Drivers Moving In Opposite Directions

In a report published Monday, Jefferies analysts downgraded the shares of

from Buy to Hold, saying that the rapidly declining iron ore prices and EUR/USD rates are "pulling Euro steel prices in opposite directions." Iron ore prices are on track to fall below record lows in Q3. The analysts expect iron ore prices to hit a trough of $49/t in Q3. On the other hand, there are mounting steel import threats. Against this backdrop, "we see risk to Euro steel prices and are cautious on producers of commodity grade steels," the analysts mentioned. "While nickel has disappointed YTD, rising utilisation rates are key to our bullish outlook for stainless steelmakers, the analysts said, while reiterating their preference for APAM, TKA, OUT1V & VOE. In the report Jefferies noted, "Over recent months, Euro steel prices have broken global trends and rallied by €10/t as the 12% devaluation of EUR/USD Fx has largely offset the negative impact of a 23% fall in iron ore prices. While EUR-denominated margins have improved as a result, as iron ore continues to tick downward, Euro steel prices may also come under pressure unless we see incremental Fx weakness." Although Euro demand appears to be recovering gradually, pricing power remains constrained. This may result in pressure on Euro steelmakers that have exposure to commodity grade steels. There could be downside risk to Mining division earnings in the near term. ArcelorMittal's Q1 earnings are likely to be adversely impacted by falling US steel prices, negative EUR & BRL translation impact and significant working capital investment. These could put pressure on the company's shares. The analysts added, however, that in the longer-term "MT should emerge as an attractive play on Western steel recovery," although for now they see "better opportunity elsewhere."