Steel Mills
Goldman Sachs Analysts Upgrade Steel Sector
Written by John Packard
November 5, 2013
Goldman Sachs steel analysts, in a letter to their clients seen by Steel Market Update, upgraded the steel sector as they feel, “…we see the sector heading to a sustainable recovery over the coming years…” They went on to tell their clients, “The supply-demand fundamentals for steel are starting to look more appealing, particularly for flat steel, as some supply has been taken out and demand drivers are firmly in place. Second, our very bearish view on input costs (iron ore) bodes well for steel producers in the long run as we believe that mills should be able to expand margins as raw material prices descend. And lastly, although not part of our base case scenario, recently filed trade cases, if successful, could provide some tailwind.”
The GS analysts point out that demand is growing due to the recoveries in non-residential construction, continued growth in auto, energy with low natural gas prices creating demand for liquid natural gas and the infrastructure needed to move and store LNG. The low energy prices are also feeding demand in the chemical and power sectors. The analysts also pointed to the oil country tubular goods (OCTG) projects for new manufacturing facilities for the product which will increase demand by approximately 2.5 million tons most coming from domestic flat rolled steel mills.
They also pointed to the end of “off-shoring” of manufacturing and the trend to bring manufacturing back to the U.S. They pointed to $5 billion of investments in the auto industry in the U.S. and Mexico as a net positive for the domestic steel industry.
The GS analysts also pointed out that the blast furnaces which have not been idled are running at high capacity rates (flat rolled) and their note stated, “we believe that flat steel has reached a critical point where mills may be able to better realize pricing power compared to the past five years when supply-demand fundamentals remained very poor…”
The Goldman Sachs view of pricing was not short-term in duration and they acknowledge that there will always be price cycles.
Bank of America Analyst Raises 2014 HRC Price Forecast.
Separate from Goldman Sachs, metals and mining analyst Timna Tanners, recently upgraded her benchmark hot rolled coil (HRC) Midwest pricing for 2014 from $555 per ton to $600 per ton citing higher iron ore and other factors.
John Packard
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