There is still a lot of potential for steel, according to Credit Suisse
Hot-rolled steel coil prices sizzled in the economic recovery, and the heat spread through steel inventories.
United States Steel
(ticker: X) and
(CLF) are up two and three times the 15% gain of the S&P 500 this year, respectively, while
is up almost 80%. A Wednesday note from Credit-Suisse analyst Curt Woodworth says stocks aren’t going to cool anytime soon.
Tight production supply raised the benchmark price for the hot-rolled coil industry to $ 1,600 per short ton, from $ 500 a year ago. A number of industry analysts lowered their ratings on Holds as they recalled how transient past pinchbacks in the industry have been, once imports derailed the party. Woodworth believes that today’s bull cycle will last a few more years and therefore argues that investors should therefore re-value stocks and give them higher multiples.
“The rebirth of the US Steel industry is a real event,” he writes.
Even at today’s popular price of $ 93, Nucor’s stock could be up nearly 25% from Woodworth’s target price of $ 115.
(EAF) have about 45% up from their targets, while they believe United States Steel could rise over 80% from the current level of $ 22. He rates all these stocks as outperforming, as he does
which it sees increase by a third from its price of $ 21.
Imports will remain moderate, according to the Credit-Suisse analyst, due to the cheap dollar and the limitation of polluting blast furnaces in China. Domestic supply will only increase slowly, he adds, thanks to a gradual increase in the capacity of electric arc furnaces. Woodworth expects demand from automakers and renewable energy developers to keep hot-rolled coil prices well above $ 1,000 through 2022. Steelmakers can make big profits at these levels of price. Even though steel prices in 2022 fall below $ 1,000, his earnings forecast makes today’s stocks look cheap.
Based on the history of the industry, Woodworth believes Wall Street is accounting for a very sharp correction in steel prices. But there is a new normal, he writes.
“Steel inventories are particularly cheap,” Woodworth concludes.
Write to [email protected]