UBS analyst Andreas Bokkenheuser raised the shares of
United States Steel
keep to sell on Friday. He doubled his price target to $ 30 per share from $ 15.
United States Steel
(ticker: X) do not respond to upgrade. They are down 0.2% in recent trade, to $ 25.84, while the
is up 0.6% and the
Dow Jones Industrial Average
is up 0.3%.
A call to own a stock isn’t as bullish as a call to buy, but the reason stocks aren’t going up is probably because they’ve had an incredible run before. US Steel stock is up 54% year-to-date and 153% in the past 12 months.
Soaring steel prices are the reason. Hot-rolled steel coil prices, a key benchmark, have increased over 60% since the start of the year and 200% in the past 12 months. Demand for steel is rebounding from pandemic-induced lows, and the strength of the economic recovery has allowed steel mills to aggressively raise prices.
The problem for any commodity producer, like US Steel, is that commodity prices cannot stay above the cost of production for long. This truism implies that steel prices will eventually drop from about $ 1,100 per tonne to $ 500 per tonne. Falling commodity prices are still weighing on commodity-related stocks.
This is generally true for the commodities industries, but every cycle is different – and Bokkenheuser sees certain things about this steel price cycle that have helped him change his mind about US Steel shares.
For starters, he sees the growth in supply limited. No more steel is coming.
More importantly, Bokkenheuser points out, China is considering an export tax on steel, trying to keep more of its product in the domestic market to drive down local prices. China is the world’s largest producer and exporter of steel, and the Chinese export price is the effective determinant of prices for the rest of the world. An export tax could “change the game”, according to the analyst.
Yet, there is no guarantee that the export tax will occur or be maintained for a long time. That’s what keeps him away from US Steel.
With the upgrade, four analysts rate US Steel Buy, seven rate it Keep, and three rate it Sell. A year ago, things seemed more difficult. US Steel shares had no buy, eight keep ratings and seven sell ratings. The average purchase ratio of S&P shares is around 55%.
Write to Al Root at [email protected]