Steel Demand Firing on All Cylinders, HRC Could Reach $1,700/t and Stay There Until Q1'22, Sales Estimates Raised for US Steel (X), Steel Dynamics (STLD), Nucor (NUE) - Morgan Stanley
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Demand is “firing on all cylinders,” says De Alba, and HRC price could reach $1,700/t and stay near all-time record levels though at least 1Q22. The analyst shares highlights from a conference call with a steel industry executive to discuss trends in the US steel industry.
“The speaker on our conference call believes that US steel prices should remain well supported until at least 1Q22, as end-market demand is strong across all end markets, inventories are uncomfortably low, and lead times remain very extended. His service center's inventories are 1.78 months of sales, which is a low level that somewhat complicates operations. He thinks customers are starting to be able to replenish their inventories slightly and, as a consequence, have started to offer some hints of resistance to the current record-shattering prices on flat-rolled steel, particularly galvanized (spot is $1,960/t),” De Alba said in a note.
“That said, customer interest is still very strong - his business has sold out contracts through October 2021, which is an unprecedented level of contract demand by their clients. Lead times at the mills are at 12+ weeks, and he notes he's still waiting to receive some January/February orders. He believes HRC prices will reach $1,700/t (spot is $1,648.74/t) and, with no attractively priced imports available to arbitrage US prices down, he thinks prices stay well supported at these levels for a few more quarters.”
The guest on a call outlined “very strong” demand across the entire market, with a special focus on the non-residential construction sector that is still “very busy.” On the demand side, the expert believes volumes may start to increase at some point.
“Several of his end-use customers have revised their internal annual projections by ranges varying from 10% to 30%. As supply availability is quite limited relative to the strength in demand, there are concerns in the market regarding double-ordering (customers placing the same order with 2 or more service center suppliers, which could lead to order cancellations, particularly if/when prices start to decline); our speaker noted that his service center monitors this issue very closely and are not seeing signs of any material level of double-ordering in the marketplace.”
A new price target on NUE is $101.00 per share (up from $95.00), and on STLD to $71.00 per share from $70.00. The price target on X remains at $32.00 per share.
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