Will Record-High Prices Help Steel Stocks Post a Blowout Q3?

·4 min read

The steel industry is on a solid footing driven by historically high steel prices and the demand upsurge across major end-markets. Robust demand and the price surge helped steel companies deliver solid results in the second quarter.

Buoyant profit guidance from some major U.S. steel makers has also raised optimism about a strong third quarter for the steel industry.

Are steel stocks buckled up for a bumper third-quarter earnings season? Let’s take a look.

Upbeat Profit Guidance From Big Steel Players

Last month, some prominent steel producers came up with upbeat guidance for the September quarter. Nucor Corporation NUE said it expects to log record quarterly earnings in the third quarter, driven by strong demand across most of its end-markets and higher average selling prices. The steel giant expects earnings between $7.30 and $7.40 per share for the third quarter. Nucor expects to report the highest quarterly earnings ever in its history, surpassing the prior record of $5.04 logged in second-quarter 2021.

Steel Dynamics, Inc. STLD also sees record quarterly performance, supported by strong underlying steel demand and significant metal spread expansion, especially in flat roll steel operations. It projects third-quarter earnings in the range of $4.78-$4.82 per share, which suggests a record quarterly performance. It expects third-quarter adjusted earnings in the range of $4.88-$4.92 per share. Steel shipments in the third quarter are projected to be strong across the company's steel portfolio.

Moreover, United States Steel Corporation X expects record third-quarter results driven by its Best for All business model, strong reliability and quality performance, persistent customer demand as well as a sustained rise in steel selling prices. The company envisions adjusted EBITDA of around $2 billion, which suggests an increase from the second quarter’s figure of roughly $1.3 billion.

Olympic Steel, Inc. ZEUS, in August, also said that it expects a strong third quarter on strong market dynamics and record-high prices. Healthy demand has helped the company’s shipping volumes to return to the pre-pandemic levels.

Robust Demand, Price Rally to Boost Profit Margins

Steel companies’ third-quarter earnings are likely to reflect strong underlying demand and a significant spike in steel prices. Demand for steel started to pick up from the third quarter of last year with the resumption of operations across major steel-consuming sectors, following the loosening of pandemic-induced restrictions globally.

Steel makers are likely to have witnessed continued healthy order booking in the automotive market in the third quarter, despite the semiconductor crunch. Order activities in the non-residential construction and equipment are also expected to be strong in the quarter.  The impact of strong demand in major markets will likely be reflected on steel companies’ shipment volumes in the third quarter.

Steel prices have also escalated to record highs on solid demand, tight supply and low steel supply-chain inventories globally. U.S. steel prices have witnessed an unprecedented surge this year underpinned by strong underlying supply and demand fundamentals. The benchmark hot-rolled coil (“HRC”) prices broke above $1,900 per short ton in August 2021 and remained above that level through September. HRC prices are more than four times higher than the multi-year low recorded in August 2020.

The demand-supply imbalance is the primary reason behind the strong run-up in steel prices. While demand remains robust, production disruptions along with hefty Section 232 tariffs have tightened steel supplies. Prices of ferrous scrap, the main raw material for electric-arc furnace steel producers, also remain elevated amid tight supply.

The effects of the price surge are expected to get reflected on steel companies’ bottom lines for the third quarter. Higher steel prices are likely to have provided a boost to the selling prices of steel makers and driven their profit margins and cash flows in the quarter to be reported. In particular, U.S. steel companies are expected to have benefited from spread expansion as a significant spurt in steel prices has more than offset higher raw material costs.


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