The Euphoric Loop – 19th February 2015

QMG DATA HIGHLIGHTS POSITIVE TRENDS IN US STEEL STOCKS – WATCH NUCOR (NUE US) & US STEEL (X US)

We are increasingly positive on US steel stocks and highlight Nucor (NUE US) and US Steel (X US) as two particular names to watch. Although US steel pricing remains weak, recent industry comments suggest that inventory levels will decline in coming months and we note the offset from the substantial decline in energy and iron ore costs over the past 3 months. Chart 1 below shows that current QMG observations show the US steel sector to be in a significantly better position than other major steel producing markets. This does not appear to be factored into either consensus forecasts or share prices. Rather than question why investors have been buying European steel names – ArcelorMittal (MT NA) and ThyssenKrupp (TKA GY) are both +9% ytd – we highlight the divergence between (strong) QMG data and (conservative) consensus estimates as being inconsistent with ytd performance of -4.8% for X and -1.6% for NUE (chart 2).

Chart 1: Steel Producers (YoY Sales Growth – US vs. Germany vs. Japan)
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Chart 2: US vs. European Steel Producers – share price performance (from 01/04/14)
27.1 stocks

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