X, CLF and MT steel stocks in the spotlight as US steel drops
For investors in steel stocks, some recent updates from American steel (NYSE:X) point to a bright future. Throughout the year, demand for raw materials has kept steel prices high and companies that dominate the industry have made it clear that they see good reasons for these trends to continue. These sustained price predictions led industry leader US Steel to announce ambitious expansion.
What is happening with the steel stocks?
The aforementioned project is the construction of a new steel plant, the actual construction of which is expected to start in 2022 with operational use starting no later than 2024. According to the the Wall Street newspaper, this edition at the company’s facilities in Pittsburg, Pa., would increase production capacity by 3 million tonnes of sheet steel per year and cost the company around $ 3 billion to build.
While the initial announcement appeared to help X shares rally, this trend has not proven to be sustainable. Since the markets opened today, stocks have fallen steadily and significantly, closing at 8%. The past week has been quite volatile, with the stock rising steadily on September 15 and declining only slightly until today.
Things haven’t been much better for US Steel’s competitors. Actions for ArcelorMittal (NYSE:YOUR) and Cleveland cliffs (NYSE:FCF) closed down 4.4% and 5.2%, respectively.
Why is this important
Despite a day in the red for most of the major steel producers, the outlook for the industry should make investors feel optimistic.
As the US manufacturing sector has gradually recovered from the effects of the Covid-19 pandemic, demand has increased. Before the pandemic, regulations born out of the trade war between the United States and China forced manufacturers to downsize or shut down altogether. This certainly applied to the steel industry, but for the companies that remained standing, it translated into increased demand and less competition, naturally leading to higher prices.
This announcement from US Steel should make investors feel very confident, especially those who hold Title X. This not only indicates that demand will prevent prices from falling to pre-pandemic levels, but that the company is convinced that demand will always allow it to overtake its competitors who could also explore expansion efforts.
What’s next for steel stocks
It may take some time for steel inventories to maintain their momentum, but it is clear that the demand and prices they have enjoyed this year are here to stay. When a company invests billions to expand facilities that won’t be operational for nearly two years, they are confident they will come back en masse in the short and long term.
If there was ever a time to bet big on steel stocks, this is it. The trade war may not have helped small businesses, but it certainly helps their bigger competitors. This in turn will help shareholders as the infrastructure boom continues.
At the time of publication, Samuel O’Brient had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.