UBS making comments on US Steel Sector; Steel trade cases mitigate global overcapacity
- Firm now assume steady steel prices in H2/14, weakening slightly through 2015/16 before strengthening in 2017. They have raised their scrap price forecast considerably, which mitigates EPS upside for the minimills
- Firm raises price target for X (Neutral rated) to $38, AKS to $11, NUE to $59 and STLD to $25.5. Upgrades AKS to Neutral from Sell
- Firm contiues to prefer Buy rated mini-mills NUE and STLD for exposure to non-residential construction demand
- Firm sees another possibility from their earlier opinion of "imports to balance the market and return US prices in-line with other regions, putting steel producers profit under pressure". Now Firm sees that trade duties help insulate the market from cheap foreign steel, and strong demand allows US mills to grow margins
- Firm finds that trade duties can be effective in the near term, however they stop short of declaring a bull market for steel prices and equities. Firm have slowed their assumed rate of price decline considerably but still have declining prices for a $50/t headwind to margins over the next 2yrs, perpetuating the industry's ongoing minicycles