In this technical blog we are going to take a look at Fundamental & Technical point of view of US steel. The steel industry continues to face a challenging economic environment due to the economic slowdown in China, volatility in financial markets, slow growth in global trade, and low prices of oil and other commodities.
Although the automobile and construction sectors continue to support the demand, the world’s largest steelmaker, Arcelor Mittal along with United States Steel Corp and AK Steel Holding Corp reported losses during the first quarter due to lower average steel selling prices. High levels of imports and lower drilling activities by energy companies continued to put pressure on pricing and shipments.
In the first quarter of 2016, as per the World Steel Association, global steel production decreased 3.6% to 386 metric tons (Mt) as production shrank across all regions. China, the world’s largest steel maker, again disappointed with a 3.2% decline. Thus economic slowdown in China has dealt a massive blow to the global steel industry. Meanwhile, according to the World Steel Association’s short term outlook published in April, steel usage in China is expected to fall 4% in 2016.
Steel production figures help you understand the steel industry’s supply-side dynamics. Global steel production has fallen on a year-over-year (or YoY) basis for 14 consecutive months. In February, the production fell 3.3% YoY. Note that lower global steel production helps US steel companies, as it helps reduce the glut of steel in international markets.
Now let’s take a look at other’s key factors involved for US Steel manufactures
- Improved Outlook in Automotive Sector As the second largest consumer of steel, the outlook of the U.S. auto sector looks promising with the decline in fuel prices, low interest rate, and attractive deals to support the sales in 2016. Cheap oil will also boost the European auto market.
- Rebound in Construction Sector Housing and construction sector is the largest sector that consumes steel. In 2016, this sector should see a strong growth due to the continued recovery in economy, improved job numbers, and affordable interest / mortgage rate. National Association of Home Builders (NAHB) reported a flat Home Builder Sentiment Index (HMI), suggesting a steady growth in the sector.
- Imposing Anti-Dumping Duties The slump in steel price is partly attributed to the influx of cheap imports. In response, some of the biggest U.S. steel producers – U.S. Steel, AK Steel, Nucor, Steel Dynamics and Arcelor Mittal USA, have filed anti-dumping petitions in Jul 2015 with the U.S. International Trade Commission (“USITC”) and the DOC against eight countries (Brazil, China, India, Japan, the Netherlands, Russia, South Korea and the UK). The petitions seek to make a case that the domestic industry has been hurt due to the subsidized imports of cold-rolled steel from these foreign countries. Conclusion was made on May 17 by the U.S. DOC that both China and Japan would be subject to anti-dumping duties. Imported cold-rolled steel from China will receive anti-dumping duty rate of 265.79%. The commerce department is now expected to issue its final rulings on imports of cold-rolled steel from Brazil, India, Korea, Russia and the UK on July 13.
Now let’s take a looks at some technical’s points at the charts:
AK Steel Holding Corporation
The stock is favored to have ended the cycle from 2014 peak on January 2016 lows (1.641). Up from there, the stock looks to be correcting at least the cycle from 2014 peak and has scope to see 50-618% fibonacci retracement area (6.448-7.594) in another leg higher. However the cycle from 2010 all time high remains intact for now, but a break above the multi year channel may give possibility of a more important low formed.
United States Steel Corporation
The stock ended the cycle from 2014 peak on January 2014 lows (6.03). Up from there, the stock looks to be correcting at least the cycle from 2014 peak and has scope to see another leg higher towards 50-618% fibonacci retracement area (26.28-31.02). If AKS breaks above the multi year channel during the move higher, the stock likely also completed the cycle from 2008 peak as well.
Nucor Corporation
The stock ended the cycle from 2014 peak on January 2016 lows (33.83). However, cycle from 2008 all time peak remains alive. As (AKS & US-Steel) has scope to see another leg higher against the January lows it has scope to follow the same & a break above the multi year channel line also provides higher chance of a more important low formed.
Conclusion: The steel industry has experienced a significant downturn due to the economic slowdown in China and low price in commodities. As a result, global steel productions have decreased significantly year over year. However, looking at the U.S. market, there are several factors to be optimistic about the future growth of US- steel makers as both fundamental & technical analysis are pointing to a steady growth. Other than the rebound in automotive and construction sectors which support steel demand, steel prices have recovered after the. U.S. started to impose anti-dumping duties on imported steel from China. The commerce department is also expected to issue its final rulings on imports of cold-rolled steel from Brazil, India, Korea, Russia and the UK on July 13. These actions are expected to assist the American steel makers defend their turf against illegally dumped steel products and boost the margins of steel companies.
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