I’ll discuss five reasons why I think that U.S. Steel looks attractive. First, the Chinese economy has shown signs of stabilization, which should support metal prices. Chinese steel prices have shown strength over the last month, which should trickle down to global steel prices. Phase one of the trade deal, despite all of its shortcomings, clears some uncertainty from the markets. Second, US steel prices have shown strength. Also, mills have announced another round of price hikes. Mill lead times have also been extended, which should support US steel prices. Spot HRC (hot-rolled coil) prices should find support at $600 per ton and might rise more from these levels. While US steel demand growth might continue to be sluggish, the supply side of the equation looks comfortable. With the Section 232 tariffs in place, we should see a structural fall in US steel imports.
Third, markets are punishing U.S. Steel for its cash burn due to the higher capex. Surprisingly, markets rewarded the stock when the company cut down on expenses and capital expenditure under the previous CEO. There was a lower-than-optimal capex. The situation was one of the reasons behind the current spending. In my view, after the ongoing capex and investments, U.S. Steel should be in a better position to compete with mini-mills.
View more information: https://marketrealist.com/2020/01/is-us-steel-stock-buy-before-q4-earnings/