U.S. Steel stock has plunged after Goldman Sachs downgraded its stock from "neutral" to "sell" after the first dip in steel prices in more than a year.
Steel prices recently reached historic highs, rising weekly since August of 2020. Prices fell to a low of $440 a ton last August as the coronavirus pandemic roiled the economy, but began a year-long streak of increases, according to Steel Market Update.
Hot-rolled coil prices peaked at $1,995 a ton last month, as compared to a previous record of $1,070 a ton in the summer of 2008, when the United States was still exporting steel to China.
But prices recently dropped to an average of $1,950 a ton, according to Steel Market Update.
Goldman Sachs expressed concerns that market conditions were changing and steel prices were poised to start declining in the United States after a meteoric rise for more than a year.
“While part of this has been driven by strong demand and a lagging supply response, we believe the market may be anticipating a correction in the coming months as additional import volumes arrive and new capacity begin operations,” Goldman Sachs analyst Emily Chieng wrote in a note. “That said, we believe there are opportunities to be more tactically positioned among the domestic steel participants, and we update our views to reflect a slightly more defensive positioning among the flat steel producers.”
A Steel Market Update survey of manufacturing executives found 80% believed hot-rolled steel prices peaked and would begin to fall back to earth.
Goldman Sachs concluded it was not sustainable to expect hot-rolled coil steel prices would remain at 140% of their historic levels. She lowered the steel price target on U.S. Steel to $21 a share.
"We believe the market may be anticipating a correction in the coming months as additional import volumes arrive and new capacity begin operations," Chieng wrote. "That said, we believe there are opportunities to be more tactically positioned among the domestic steel participants, and we update our views to reflect a slightly more defensive positioning among the flat steel producers."
U.S. Steel stock prices fell from $22.45 Tuesday to around $20.70 a share at the end of business Friday.
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