JPMorgan Lowers Steel Companies' Price Targets on 'Flattish' Steel Price Environment -- Commodity Comment

   By Dave Sebastian

JPMorgan & Chase Co. on Monday lowered estimates and price targets for steel companies as it said steel stocks and prices have been under pressure this year. Some concerns JPMorgan noted were planned supply additions for the next few years, ongoing trade uncertainty and softening demand.

"After a rebound later in the summer, steel and scrap prices are now heading lower again," JPMorgan analysts said in a note. "If current economic and trade conditions hold, we think HRC steel prices will likely fluctuate between $500-600/ton over the near-to-medium term, with prices likely easing somewhat further over the next couple of months and then rebounding modestly heading into 2020."

On slipping steel sheet prices after increases:

"After reaching a low of around $510/ton in early July, U.S. hot-rolled steel prices rebounded to roughly $600/ton by the end of July, as the domestic steel producers announced three separate $40/ton price increase for carbon sheet products. Over the past several weeks, however, steel prices have started to ease and are currently sitting around $550/ton. After an increase in August, September scrap prices settled down $30-40/ton."

On imports:

"Import share of carbon sheet steel has been trending down since the Section 232's 25% tariff was implemented, with total sheet imports accounting for 19% of apparent consumption in the U.S. in 2015 and 12% YTD in 2019. Despite this increase, YTD in 2019, approximately 47% of all carbon sheet steel imports have originated from countries that either have a volume quota into the U.S. or are not exposed to the Section 232 tariff (mainly Canada and Mexico)."

"We believe domestic steel prices have downside risk when Section 232 tariffs are eliminated - most likely as a result of some comprehensive trade deal with China."

On steel production:

"Raw steel production and steel mill utilization rates increased steadily on a y/y basis throughout 2018, as the Section 232 tariffs put in place in March 2018 led to a reduction in imports. These gains have eased throughout 2019, with July raw steel production up 2% y/y (on a three-month moving average) and utilization rates holding steady at 81% in both July and August."

On apparent consumption:

"Apparent consumption also moved higher throughout 2018 from generally favorable end market demand. In 2019, however, y/y increases have decelerated throughout the year from a softening in economic conditions, particularly in manufacturing and energy, with apparent consumption (on a three-month moving average) roughly flat y/y in July."

Write to Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

September 23, 2019 12:01 ET (16:01 GMT)

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