Steel Stocks Maintain Strong Performance in December
Steel and steel-related stocks outperformed the market again in December, with 25 stocks outperforming the S&P 500’s 0.6% rise and only 15 stocks underperforming. After a 15.3% surge in November, the S&P Steel Supercomposite index soared another 9.6% in December, as it became increasingly clear we are past the bottom in the steel sector – at least for the time being - as global steel and raw materials prices began to increase and then increase at an accelerated pace towards the end of the month.
All Sub-Indices Rise in December
The two strongest indices in our coverage universe were the specialty steelmaker index, rising 11.3%, followed by the pipe and tube index which rose 8.0% following two monthly declines. Our blast furnace steelmaker index and metals service center index rose 7.3% and 6.2%, respectively, reflecting improving global steel prices. Our minimill index rose a mere 1.5%, dragged down by a 5% decline for Commercial Metals which kicked off their “mid-quarter” November fiscal quarter in late December with a subdued outlook for the coming quarter. Our raw material provider index rose only 0.8%, most probably due to the 86% surge in the prior year.
We are seeing improving fundamentals as surging demand in China, higher raw materials prices, marginal production cuts in China and low inventories globally drive steel prices higher. Fourth quarter earnings should contain very little good news save for the outlook, which we think is far brighter than it’s been since this rout began.