TX - Steel Dynamics Is One To Watch With A Contrarian Eye As Fatigue Shows In Steel End-Markets

2024-06-17 13:55:13 ET

Summary

• Signs of weakness are building for the steel industry, including softening industrial and non-residential construction activity and weaker prices.
• Steel Dynamics management sounded bullish when discussing their outlook after Q1'24 earnings, but prices have fallen since then and Nucor recently guided substantially lower for Q2'24 earnings.
• Weaker industrial activity and a correction in warehouse new-builds will pressure steel demand in the near term, but longer-term drivers like reshoring/near-shoring and infrastructure spending are positive.
• Steel Dynamics has shown many times that it can manage both the ups and downs of the steel cycle, continuing to invest for the future and return cash to shareholders.
• It may be early to step into this pullback, but this is a name worth watching more closely now.

The steel market has definitely gotten more interesting of late. While Steel Dynamics ( STLD ) management said all of the right things after first quarter earnings, including referencing a strong order backlog and evidence of strength in multiple end-markets, spot prices have continued to shrink and the outlook for many important steel-consuming industries has weakened. Most recently, Nucor ( NUE ) surprised the Street with weaker than expected mid-quarter guidance (EPS almost 30% below the sell-side at the midpoint) on weaker pricing and shipments....

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