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Steel Prices Have Strong Fundamentals Despite Recent Volatility

Date:2017-03-15

Following a strong rally isteel prices over the last few months amid prospects for higher infrastructure spending, production cuts from China and higher tariffs on Chinese products, steel prices are under pressure over the last couple of weeks, thanks to concerns over higher iron ore inventories in China and questions over Donald Trump’s potential to execute his promises.

After failing to remove Obamacare, traders’ concerns are getting hit by fears that infrastructure expenditure will go a similar way as health care. Remarks from Morgan Stanley also hit steel prices in the latest trading session.

“Steel prices could see “tactical bumps on 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.

However, several analysts believe that the price weakness due to cost deflation could have a short-term influence on prices. In addition, traders expect trade barriers and China’s strategy to curb supplies to continue to offer strong support to margins.

In the U.S., Steel prices have strong future fundamentals, supported by increasing demand from the industrial and energy sectors. Moreover, Trump’s strategy to create more trade barrier for Chinese products could add to the U.S. steel prices.

Kurt says, “We think U.S. mills will benefit from higher volumes and better fixed cost absorption in 2017 as demand for steel in the US is tracking favorably, import pressures will likely remain benign as a result of recent and coming duties, and service center inventories are low.”

Analysts also look bullish over steel stocks and they predict the latest selloff as a buying opportunity. Aside from Trump’s planned restrictions, the recent growth in import tariffs and the decline in domestic production will help steel prices in U.S.

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