Steel Prices Are Likely To Get Support in Global Markets, China Could Weigh on Prices

4 April 2017

Steel prices soared sharply in the last twelve months, strengthened by Donald Trump’s aggressive infrastructure plans, China’s production cuts and higher import tariffs from European countries and the United States. Several analysts have raised their target prices for steel makers considering improving market fundamentals. Jefferies increased its target stock price for U.S. Steel to $50 from $45, expecting the company to beat the Wall Street consensus estimate for EBITDA of $1.25 billion.

ArcelorMittal, the largest European steel maker, also received a strong buy rating from Bank of America, saying that the macroeconomic environment appears very helpful. In addition, Morgan Stanley also expects strong growth in demand for U.S. and European metals and mining space.

Encouraging ratings clearly indicate a positive trend in steel prices in the coming months. Although, the steel industry has also been experiencing significant challenges in the form of record level of inventories in China and the recent growth in interest rate, which could have a negative impact on the construction and housing industry, which is the key to steel demand.

Following the United States, China has also recently increased their interest rate, putting pressure on housing and construction industries. Li Xinchuang, president of the China Metallurgical Industry Planning and Research Institute said that the country’s steel demand could decline around 1.9% this year, thanks to strong growth in the production of major steel-making ingredients.

However, on the positive side, China has also reaffirmed their strategy to curb excess steel production this year, which will continue to offer strong support to prices. On the other hand, U.S. has proposed new antidumping duties on steel from eight countries, including Japan, Australia, Belgium, South Korea and Taiwan, which will further improve steel prices in the coming months.