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Steel Prices Heat Up Despite Lackluster Earnings

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Steelmakers are preparing for a better year ahead with higher demand.

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Though not one of the most popular industrial metals on Wall Street, steel has certainly been under close watch in the last few weeks, as commodity traders brace themselves for what looks like an inevitable spike in spot prices. After several lackluster earnings reports, top US steelmakers have made it quite clear that steel will come at a higher price tag in the near future despite weak current demand.

This week, bellwether US Steel Corp (NYSE:X) reported its rather upsetting fourth quarter figures, posting a $50 million loss for the period. AK Steel Holding Corp (NYSE:AKS) and Nucor Corp (NYSE:NUE) also took a hit, reporting falling revenues and underwhelming earnings. In an effort to shore up profits and revenues, several companies have already sent letters to customers to notify them of a price increase for a number of major categories of steel, particularly those used in the automotive, construction and energy industries. Steelmakers have expressed their desire for a price increase in the range of $35 to $50 a ton.

Steelmakers Optimistic About Metal's Future

Despite lackluster earnings in the fourth quarter, steelmakers are gearing up for what they hope will be a more promising year. Demand is expected to strengthen, especially given that the housing market and automotive industry has picked up steam in recent months.

Recent US building permits and housing starts data has shown a significant uptrend in the home building and construction industry, a signal to investors that the once-leveled housing market is back on its feet and on the rise. Motor vehicle sales have also rebounded from historical lows, demonstrating that consumer spending habits are in fact better than what most of the pessimistic headlines describe.

There are, however, some concerns when it comes the energy industry. Steelmakers warn that weak demand for the metal in energy applications will likely persist for some time, as domestic oil and natural gas drilling remains at low levels.

Whether you are optimistic about this industrial metal's future or not, investors should keep a close eye on steel futures and steelmakers' stocks as several opportunities may present themselves throughout the year.

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Editor's note: This article by Daniela Pylypczak was originally published on Commodity HQ.
No positions in stocks mentioned.
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