Opportunity: Steel Prices Could Trend Much Higher

FILE - In this Aug. 28, 2018 file photo, welders work on Iowa-side columns for the new Interstate 74 bridge in Bettendorf, Iowa. In the midst of an election year, President Donald Trump has outlined a new $1 trillion infrastructure plan. This time, the Republican president is proposing to rely fully on federal spending to reach his goal, a fundamental change that is praised by some state transportation officials and industry groups, even though Trump's proposal doesn't spell out how to pay for it all. (Todd Mizener/The Dispatch – The Rock Island Argus via AP, File)

Steel prices aren’t cooling off.

According to Tata Steel CEO T.V. Narendran, steel prices could be “much higher” in coming years, as noted by CNBC.  “I expect to see steel prices at a much higher level than we’ve seen in the last 10 years, over the next 10 years,” he said.

Plus, according to The Wall Street Journal, “The extended boom in the $180 billion U.S. steel industry that began last year following the CV-related shutdowns of mills is giving steelmakers more time to bring new plants into service and renew customer contracts at higher prices.”

Also, steel inventories are still tight, with demand gaining momentum.  It’s part of the reason US Steel, for example, just crushed earnings, with adjusted EPS of $5.36 on $6 billion in sales. Meanwhile, the Street was only looking for $4.87 EPS on $5.8 billion. The company also announced it would buy back $300 million in stock, and hiked its dividend to five cents from a penny.

“We continue setting records, including record net earnings, record Ebitda, record Ebitda margin, record liquidity, record safety, and record quality and reliability,” said CEO David Burritt, as quoted by Barron’s. “Our balance sheet has been transformed and the cash flow generation of the business has us highly confident in our ability to pre-fund organic growth investments.”

Even Steel Dynamics just announced a quarterly cash dividend of $0.26 per common share, payable to shareholders of record at the close of business on December 31, 2021 on or about January 14, 2022.

While investors can always buy US Steel (X), Nucor (NUE), and Steel Dynamics (STLD) on the news, related ETFs offer good opportunity as well, including the VanEck Vectors Steel ETF (SLX).  At $55.74 with an expense ratio of 0.95%, the SLX ETF offer exposure to Rio Tinto, Vale, Nucor Corp., Reliance Steel & Aluminum, US Steel Corp., and Steel Dynamics.