New U.S. steel capacity will swamp the market and drag on steelmakers' profit margins, Bank of America Merrill Lynch says.
Bank of America Merrill Lynch is warning of a price-crushing steel glut so punishing that it warrants the end-of-days moniker"Steelmageddon."
In the wake of Steelmaggedon, Merrill sees the U.S. industry emerging with a smaller footprint, as new electric arc furnaces replace older blast furnaces. The bank believes Nucor and Steel Dynamics could emerge with better market share and healthier profit margins, but warns that Steelmaggedon should deter most long-term investors from buying into the space.
"After the dust clears from Steelmageddon™, an attractive steel industry could emerge. But we would warn investors the path for the next several years of upheaval can be treacherous."In the near-term, Merrill Lynch expects steel prices to remain roughly steady, with benchmark hot rolled coil trading between $650 to $750 per ton. But the bank sees prices falling to $550 to $660 per ton into 2021 and 2022.
The high end of Merrill's range assumes current market conditions hold up and the U.S. maintains 25 percent tariffs on imported steel.
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