JPMorgan Lowers Steel Companies' Price Targets on 'Flattish' Steel Price Environment -- Commodity Comment
September 23 2019 - 12:16PM
Dow Jones News
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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