Market Overview

Bank Of America Gives US Steel A Double Downgrade As Steel Prices Soften

Bank Of America Gives US Steel A Double Downgrade As Steel Prices Soften

U.S. steel pricing is not where analysts had anticipated this spring, and one analyst says lower steel prices are bad news for United States Steel Corporation (NYSE: X).

The Analyst

Bank of America analyst Timna Tanners downgraded U.S. Steel from Buy to Underperform and cut her price target from $31 to $18.

The Thesis

Steel prices typically peak during the spring season, but Bank of America’s latest pricing checks indicate hot rolled coil prices recently hit their lows for the year. Despite higher international iron ore prices, scrap prices dropped $25/t in April from March levels. Tanners says without a solid pricing environment, it will be very difficult for U.S. Steel to gain any traction in the market.

“Our X downgrade reflects a view that without a near-term pricing catalyst, shares face headwinds from anticipated cash burn of $150-200M for 2019E-2021E amid elevated capex needs,” Tanners wrote in a note.

U.S. steel typically prices between $50 and $100/t above landed import prices, but mills have recently been pricing sheets at or below import prices. After meeting with steel buyers, Tanners said U.S. mills are competing for market share by oversupplying the market and driving prices down.

Bank of America cut its 2019 HRC price estimate from $730/t to $699/t, including a price forecast of $710/t in the second quarter. Tanners says given the difficult environment, she much prefers Nucor Corporation (NYSE: NUE) and Steel Dynamics, Inc. (NYSE: STLD) over U.S. Steel given their near-term cash flow outlook.

Price Action

Following the downgrade and additional downgrade from Credit Suisse on Tuesday, U.S. Steel shares are down 15.8 percent on the week. The stock traded around $16.80 at time of publication.

Related Links:

Credit Suisse Downgrades US Steel Ahead Of 'Sheet Tsunami'

Morgan Stanley Upgrades US Steel, Sees Near-Term Bounce In Steel Prices

Latest Ratings for X

Oct 2020ScotiaBankMaintainsSector Outperform
Aug 2020CitigroupMaintainsNeutral
Jul 2020ScotiaBankMaintainsSector Outperform

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