- Steel prices (SLX -1.6%) could see “tactical bumps in the road” in the near-term as a meaningful drop in the steel cost curve likely will create additional headwinds for global prices, ultimately impacting the U.S. market, Morgan Stanley analysts say.
- The firm nevertheless says any cost deflation related price weakness should have little impact on the mid-cycle margin outlook, and while price cycles will never disappear, it believes structural improvements in the form of trade barriers and China supply side reform should allow margins to remain higher on average going forward.
- Stanley recommends buying steel stocks on any weakness, and sees Nucor (NUE -1.4%), Steel Dynamics (STLD -1.6%) and U.S. Steel (X -4.2%) as its top picks.