Is the Steel Industry Going Downhill From Here?
Steel has gone through a roller-coaster cycle this year.
Following a great runup in the first half of the year, steel prices have collapsed since August. The U.S. hot-rolled coil Midwest price declined from its July peak of $1,090 per ton to $760 per ton. Not long after reporting record quarterly results, U.S. steel mills are cutting output by as much as 35% going into the fourth quarter.
So what happened? To make a long story short, a global demand boom over the last couple of years led to higher steel prices and higher raw material prices (raw materials include iron ore and metallurgical coal). U.S. steel mills, which used to be the high-cost, marginal producers on a global scale, suddenly found themselves on a level playing field with their Asian counterparts, as U.S. mills are less dependent on imported iron ore than Asian mills. With steel prices high and input costs in check, U.S. steel producers enjoyed terrific profits. However, the sector turned from a supply-constrained situation to one of demand destruction within a matter of months. Now that steel prices have come down, are the halcyon days of the U.S. mills over for good?
Min Ye does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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