STEEL STOCKS: BUBBLE READY TO BURST?

Steel demand crashed during the COVID War. Now, as the world’s economy reopens, mills are unable to meet the sudden surge in demand.
As a result, prices for both steel and steel company stocks have skyrocketed.
The good news for U.S. steel users: all of the country’s pre-COVID War capacity is back online… but at a price.
Prices for the benchmark hot-rolled coil steel cratered to $460 a ton last spring; now they have vaulted to a record $1,500, almost triple the 20-year average price.
The share price of U.S. steel has tripled in the last 12 months; Nucor’s stock price has jumped 76 percent since December.
“We expect this will correct,” Bank of America metals analyst Timna Tanners told CNN Business, “and often when it corrects, it over-corrects.”
Tanners, who has been tracking the metals market for two decades, released a research report earlier this month titled, “Steel Stocks in a Bubble.”
Steel’s current prices are “like $170-a-barrel oil,” Phil Gibbs, chief of metals equity research at Keybanc Capital Markets, commented to CNN Business. “The correction will be very intense. It’s just a matter of when and how it happens.”
Gibbs emphasized his view that steel prices – not the price of steel stocks – are in a bubble.
“Current steel prices are at peak (or close to it)… and will correct sharply lower at some point,” Citi analyst Alex Hacking agreed in a 5 May research note.
TREND FORECAST: As we have forecast, the world will bounce back from the lockdowns, and demand for products and services will increase… for several months. China’s manufacturing strength remains strong and steel prices will stay strong if President Biden continues steel tariffs imposed by former President Trump.
Steel is only the latest commodity to see shortages and record prices. From chlorine to computer chips, the world is short on materials and willing to pay premiums for available supplies.