Nomura Sees Headwinds in Steel, Prefers Nucor (NUE) and Steel Dynamics (STLD)

Nomura analysts made a bearish, medium term call on the steel industry today. In a note, analyst Curt Woodworth pointed out that U.S. steel utilization rates reached their lowest level since November 2010 and scrap prices, the key indicator for U.S. sheet direction, have started to weaken.

"We believe the structural shift towards sharply lower steel demand growth in China coupled with a more balanced / surplus raw material market over the next several years should result in a significant flattening of the global cost curve. This dynamic is negative for U.S. integrated producers due to higher fixed cost pressures but bullish for EAF players given scrap prices are directionally linked to pig iron," said Woodworth.

"Low scrap prices should support EAF margins and enhance their ability to take U.S. market share," concluded Woodworth.

With this in mind, Nomura reiterate Buy ratings on Nucor Corporation (NYSE: NUE) and Steel Dynamics Inc. (NASDAQ: STLD). In contrast, it maintained Neutral rating on AK Steel (NYSE: AKS) and US Steel (NYSE: X).

For an analyst ratings summary and ratings history on Nucor click here. For more ratings news on Nucor click here.

Shares of Nucor closed at $43.45 yesterday.

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