Pittsburgh Post-Gazette

The steel stock bubble is losing some air

- LEN BOSELOVIC

Steel was one of the biggest post-election stock trading ideas. The prospects of President Donald Trump putting America First and spending $1 trillion on steel-intensive infrastruc­ture animated investors, who began gobbling up shares of the cyclical industry as if they were the next Microsoft. And word that the new administra­tion might curb steel imports on national security grounds further fanned investors’ ardor.

Seven months later, it may not seem like it was such a great moneymakin­g scheme after all, depending on which steel producers you placed your bets on or when you cashed in your chips.

Take the case of U.S. Steel [ ticker: X], whose shares doubled between Election Day and Feb. 21, when they hit $41.57. But those who hung on until the Pittsburgh steelmaker shocked Wall Street with a $180 million first-quarter loss got clobbered. On Thursday, U.S. Steel shares closed at $21.07 vs. their Election Day close of $20.96.

Some steel stocks have performed significan­tly better.

Since the polls closed Nov. 8, shares of Steel Dynamics [ STLD], a Fort Wayne, Indiana, steelmaker, rose more than 17 percent through Thursday, outperform­ing the S&P 500. Over the same period, Nucor [NUE], a Charlotte, N.C., steelmaker, has risen 10 percent while Irving, Texas-based Commercial Metals [ CMC] was up nearly 11 percent.

Why the disparity in performanc­e?

U.S. Steel’s unexpected firstquart­er loss and disclosure that it will take three or four years and more than $1 billion to address operationa­l issues at its mills had a lot to do with it, according to New York metals industry analyst Charles Bradford.

“There is serious, serious gross mismanagem­ent at that company,” he said. “How it can take them three years to get caught up on maintenanc­e boggles my mind.”

Mr. Bradford said another

factor is that U.S. Steel’s exposure to the infrastruc­ture market is small compared with the boost Steel Dynamics, Nucor and Commercial Metals would get from Mr. Trump’s proposed $1 trillion spending plan.

Those three steelmaker­s make steel plate, beams and rebar — steel bars used to reinforce concrete. U.S. Steel makes some plate but not beams or rebar, and so it won’t benefit as much from any infrastruc­ture plan that Mr. Trump is able to get approved, Mr. Bradford said.

U.S. Steel has broader exposure to the automotive market, where analysts are seeing signs that sales of new cars and trucks, which hit a record 17.6 million last year, may have peaked. CFRA Research analyst Matthew Miller expects demand for new vehicles will taper off this year as well as in 2018, which could hurt steel sales. But he said the trend of buyers opting for larger vehicles that contain more steel could counter a decline in new car sales.

Mr. Miller told clients last week, “Any infrastruc­ture-related premium that steel names benefited from following the election has been completely eliminated.” However, he believes steelmaker­s could benefit from another Trump initiative that could bear fruit any day.

Steel producers are eagerly awaiting a report from U.S. Department of Commerce Secretary Wilbur Ross, a former steelmaker himself, on whether steel imports threaten national security. Mr. Trump ordered the study in April and it could lead to sanctions on imports. U.S. manufactur­ers who rely on imports say penalties would hurt their operations and eliminate jobs.

“It’s one of those things where Trump and Wilbur Ross have clearly indicated they want to support this industry,” Mr. Miller said.

Mr. Ross, the secretary of commerce, has promised to deliver his report by the end of this month. Depending on what he has to say, Mr. Miller said the steel stocks that have been hurt the most stand to gain the most if Mr. Trump curbs imports. That includes U.S. Steel and AK Steel [ AKS], a West Chester, Ohio, steel producer that has operations in Butler.

Domesticst­eelmakers havelong complained that unfairlytr­aded imports steal customersf­rom them and drivedown prices. Against thatbackdr­op, shares of SteelDynam­ics and Nucor havesignif­icantly outperform­edU.S. Steel’s stock overthe long haul.

Mr. Bradford said the performanc­e gap reflects the fact that Steel Dynamics and Nucor have better cost structures and management than U.S. Steel. Those issues are more pressing than steel imports, he said.

 ?? Rebecca Droke/Post-Gazette ?? U.S. Steel Clairton Works is seen from across the Monongahel­a River in Glassport.
Rebecca Droke/Post-Gazette U.S. Steel Clairton Works is seen from across the Monongahel­a River in Glassport.
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