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Steel demand not enough to lift US Steel, AK Steel, Citi says

  • Steel stocks are starting to cool off after a hot six months, and Citigroup thinks they could cool off even more, with even a pickup in demand after a lackluster 2013 not enough if prices don’t stay high.
  • Steel imports that grew 4% in H2 2013 should accelerate and pull down U.S. markets, and weather-disrupted scrap supply which supported prices should normalize/correct in coming months, the firm says, adding that many steel names look less compelling on valuation after big gains.
  • Cit rates Steel Dynamics (STLD) a Buy for its valuation, margins and links to the construction industry, while Nucor (NUE) and Commercial Metals (CMC) get Neutral ratings; US Steel (X) is Neutral too, but "would risk multiple-compression if [hot rolled cold steel] corrects."
  • The firm's least favorite: AK Steel (AKS), “based on our outlook for negative free cash flow due to pension/OPEB funding obligations, leveraged balance sheet, and challenging stainless markets."
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