ArcelorMittal, the largest steel producer in the world, ran into some trouble at one of its U.S. facilities recently. KeyBanc analyst Philip Gibbs said a furnace at a plant in Indiana Harbor, a former Inland Steel mill, was damaged. The accident could have implications for the struggling U.S. steel industry.
“ArcelorMittal USA’s basic oxygen furnace (BOF) at its Indiana Harbor Number 4 operations experienced fire damage [this past] Friday,” Gibbs wrote in a Tuesday research report. He estimates the furnace can produce about 3 million tons of steel a year, which works out to about 3% of U.S. steelmaking capacity.
The unexpected outage might support further upside for the price of hot-rolled steel—a benchmark product for the industry. The price bottomed in October around $510 a ton. Now January steel futures are trading around $590. Gibbs thinks prices could hit $625 a ton early in the new year.
Prices, of course, are key to steel earnings. In fact, commodity prices matter more than what a company predicts about its earnings, which often reflect what has happened with steel prices.
Nucor (NUE), for instance, offered fourth-quarter guidance in December, more than two-thirds of the way through the quarter. Earnings are expected to be about 27 cents a share, below the 90 cents earned in the third quarter and below what Wall Street analysts were predicting. Still, Nucor stock is about flat in December and up more than 10% over the past three months. Gains in the price of steel have trumped company guidance.
Nucor is the largest U.S. steel producer. Mittal is the largest steel producer in the world, with more than 100 million tons of steelmaking capacity, about four times the size of Nucor. The industry, however, is fragmented. Mittal has only about 5% of global steelmaking capacity. And the top five global steel producers control less than 20% of global output.
The largest producers, apart from Mittal, are all in Asia. That makes sense. China produces about half of the world’s 1.8 billion tons of steel annually. Nucor ranks 12th. United States Steel (X), once the largest steel company in the world, ranks 26th.
Steel stocks, for the most part, have reacted to higher pricing, staging an impressive rally from summer lows. Still, the sector has its struggles with slower U.S. industrial production and imports. For investors, rallies resulting from outages represent trading opportunities, not reasons to jump back in for the long term. Mittal has other facilities and will fix Indiana Harbor. But an outage, assuming no one was hurt, is a bit of good news for a volatile sector of the stock market.
Mittal stock is down almost 14% year to date, trailing far behind gains of the S&P 500 and Dow Jones Industrial Average. But shares are up more than 20% over the past three months. A volatile sector, indeed.
Fonte: Barrons
