Trade-War Concerns Drown Out Steelmakers' Optimistic Outlook

(Bloomberg) -- Just as U.S. steelmakers were promising better times ahead, trade-war concerns have reasserted themselves to swamp their shares.

U.S. Steel Corp. tumbled 8.6% on Friday after President Donald Trump’s threat of a fresh round of tariffs against China triggered a sell-off that sent the MSCI World Index to its worst weekly loss this year. A S&P gauge of 13 steelmakers plunged to the lowest in more than a month, even after some of the companies’ top executives painted a rosy outlook in demand.

Steelmakers are bearing the brunt of investors’ pessimism amid mounting signs that the trade war between Washington and Beijing are already hurting the outlook for global growth. In the U.S., a factory gauge sank to an almost a three-year low in July, while analysts expect data to show a decline auto sales last month, adding to signs of slowing demand for the metal.

Growth concerns are muting the optimistic outlook conveyed by the top executives of steel companies. Last month, John Ferriola, the chief executive officer of Nucor Corp., the largest U.S. steelmaker, called a bottom in steel prices, citing strong demand in key end-use markets.

Investors "have to take what the companies say with a cup of salt, not even a grain of salt," Andrew Cosgrove, an analyst at Bloomberg Intelligence, said in a telephone interview. "The companies and investors are basically looking at the same data. Shareholders are not only discounting the fact that growth is slowing but the new supply that’s coming online."

Nucor has raised U.S. prices, as did ArcelorMittal, the world’s biggest steelmaker. Spot prices for U.S. hot rolled coil, a core product, climbed 19% from the lowest since late 2016.

There is also skepticism about how long the rally in steel prices will last. Bank of America Merrill Lynch analyst Timna Tanners said the price hikes that mills are attempting to implement are likely to run out of steam soon.

On Thursday, ArcelorMittal cut its estimate for global steel demand, saying growth could be as slow as 0.5% this year. That will likely mean supply will outpace consumption, putting more downward pressure on U.S. pricing, according to Cosgrove.

“It’s hard to see prices going up much higher,” Cosgrove said. “I have a hard time believing that the U.S. will stay insulated from whatever pressures come from the rest of the world.”

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