U.S. Steel announced on Thursday (16th) the construction of a new plant to increase the annual production capacity of steel sheets by 20%, but Wall Street analysts worried that it may cause overcapacity, which dragged down U.S. Steel (X-US), which plummeted on Friday (17th). 8% to 23.36 US dollars per share, the largest decline since June.
U.S. Steel announced on Thursday that it will spend about US$3 billion to build a small steel plant. The new plant will be equipped with two electric arc furnaces (EAF). The main raw material is scrap steel, which is much more energy-efficient than traditional integrated steel plants that use coal to make iron. The company expects to start construction in the first half of 2022 and start production in 2024. The annual output of the new US plant is expected to be 3 million tons.
The construction of new plants in US Steel is mainly optimistic about the recovery of the manufacturing industry and the rebound in demand, which supports the maintenance of high-end steel prices. S&P Global Platts data shows that the spot price of steel sheet is approaching US$2,000 per ton, which is much higher than that of less than US$500 per ton last summer.
However, many Wall Street analysts believe that this may cause oversupply and have a negative impact on steel prices.
Morgan Stanley analyst Carlos De Alba said in a report released on Friday that new capacity may increase concerns about possible oversupply in the market and have a negative impact on steel prices.
De Alba pointed out: “Compared with the existing blast furnace assets, the new electric arc furnace may be a good investment, but it will consume our current model to calculate all the free cash flow from the first quarter of 2022 to the second quarter of 2024. .”
Credit Suisse analyst Curt Woodworth predicts that the market seriously underestimates the profitability of U.S. steel in the next two years. Although the new plant is about to start production, the U.S. demand will still have a compound annual growth rate (CAGR) of 3% to 4% in the next few years. ).
US Steel (X-US) shares plummeted nearly 8% on Friday to $23.36 per share, the biggest drop since June 17.
Other steel stocks also underperformed. Newke Steel (NUE-US) fell 4.46%, Steel Power (STLD-US) fell 2.76%, Cleveland-Cliffs (CLF-US) fell 5.27%, and Commercial Metals (CMC-US) fell 0.23%.
