3 Stocks to Vulnerable amidst Declining Steel Prices in 2024
As the steel industry faces pressure with the VanEck Steel ETF (NYSEARCA:SLX) experiencing a downturn of about 4% year-to-date in 2024, investors are cautiously reassessing their portfolios. This cautious stance is further reinforced by the stabilization of China’s crude steel output in 2023 at approximately 1.02 billion metric tons, along with an anticipated modest growth in steel demand of 2.1% for 2024. Despite these developments, the concurrent increase in capacity is expected to lead to a decline in steel prices. In light of these market dynamics, here are three stocks that investors might consider avoiding.
1. U.S. Steel (NYSE:X)
U.S. Steel is a prominent player in the global steel production sector, catering to diverse industries such as automotive, construction, and infrastructure. Despite its significant foothold, the company’s future prospects appear dim due to falling steel prices and the ongoing volatility surrounding its merger and acquisition (M&A) activities. Notably, an all-cash acquisition agreement with Nippon Steel proposed at $55 per share, amounting to an equity value of roughly $14.1 billion, is under potential threat from political interventions in the U.S. This uncertainty adds a layer of risk for investors, potentially impacting the stock’s valuation negatively.
2. ArcelorMittal SA (NYSE:MT)
ArcelorMittal, a titan in the steel industry with a vast global presence, currently navigates through challenging macroeconomic conditions, increased production costs, and muted demand. These challenges are particularly pronounced in Europe and have been aggravated by geopolitical tensions, such as the conflict in Ukraine. The company’s operations have been severely hindered, with significant production disruptions across Europe, Africa, and Brazil, and a substantial operational downgrade in its Ukrainian unit due to the ongoing conflict. Given these constraints, ArcelorMittal’s stock might not present an attractive proposition for investors until there is more clarity on the geopolitical front.
3. Cleveland-Cliffs (NYSE:CLF)
Cleveland-Cliffs has witnessed a flurry of optimism in recent months, buoyed by promising profitability projections for 2024. Despite a modest year-on-year revenue increase in the fourth quarter and a positive outlook on reduced steel unit costs, Morgan Stanley recently downgraded the stock. The downgrade was primarily due to the anticipated decline in steel prices and the company’s significant exposure to the automotive sector, which is expected to underperform this year. Given these factors, Cleveland-Cliffs might face headwinds in the coming months, suggesting a cautious approach for potential investors.
In summary, the steel market’s current volatility and expected downward pricing pressure in 2024 suggest a cautious approach for investors, particularly concerning stocks like U.S. Steel, ArcelorMittal SA, and Cleveland-Cliffs. These companies face unique challenges that could affect their performance, making them less attractive investment options in the near term. As always, investors should conduct thorough research and consider their risk tolerance when evaluating potential stock picks in this fluctuating market environment.
