Is Steel A Better Trade In The Second Half Of 2015?
In a report published Tuesday, Morgan Stanley analyst Evan Kurtz discussed why steel may see upside in pricing and volumes in the bottom half of 2015.
Kurtz noted that a second flat-rolled trade case was filed in as many months as domestic steel makers attempt to counter the negative effects of "dumped" steel. The new case covers 65 percent of CRC (cold rolled carbon steel) imports and places an alleged duty of up to 32 percent.
"While we will not get a sense of the long term implications of these cases until the duty margins are set, in the short term, the process should deter buyers from imported steel," Kurtz wrote. "Duties are retroactive to the DOC's preliminary ruling, usually a few months into the case, or earlier if critical circumstances are found, which makes importing a risky proposition."
AK Steel: Identifying Areas Of Growth
Kurtz pointed out that AK Steel Holding Corporation (NYSE: AKS) identified the auto market as an area of strong growth. The company also expects specialty steel products, especially electrical steel products, to be an area of growth in the coming quarters as improving housing starts and energy efficiency standards will generate demand.
Kurtz also noted that AK Steel expects to see "favorable" raw materials tailwinds in the bottom half of 2015 due to lower iron ore, carbon scrap and natural gas prices as the company typically sees pricing effect of iron ore on a three- to four-month lag.
Shares of AK Steel have tumbled around 50.34 percent from a year ago.
Cliffs Revises Guidance Lower
Cliffs Natural Resources Inc (NYSE: CLF) revised its full-year sales and production guidance lower by 1.5 million tons to 19 million total tons of iron ore pellets. According to Kurtz, "persistently low" utilization rates continue to "hinder" demand from the company's U.S. customers, although management "alluded" to some upside in the second half of 2015.
Kurtz also added that Cliffs expects its working capital usage to reverse in the second half of the year and should become a source of cash as the company continues to manage its inventory.
Shares of Cliffs have plunged around 64.71 percent from a year ago.
US Steel: Short Term Cost Reductions In Focus
Finally, Kurtz commented on United States Steel Corporation (NYSE: X)'s $175 million cost cutting initiatives in the second half of the year, noting that the company's management emphasized that these cuts are "short-term in nature" and will not be sustainable as utilization rates begin to move higher.
Shares of US Steel have lost around 26.81 percent from a year ago.
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