Goldman Sachs analyst smiles on EAF steelmakers
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Goldman Sachs analyst smiles on EAF steelmakers

Investment firm sees bright path forward for scrap-melting steelmakers.

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April 1, 2020

Investment banking and advisory firm Goldman Sachs has reportedly recommended the stocks of two of America’s largest electric arc furnace (EAF) steelmakers as ones poised to weather the COVID-19 coronavirus storm.

The investment firm upgraded Charlotte, North Carolina-based Nucor Corp. from a “hold” to a “buy” rating at the end of March, according to an online report from Barron’s. That followed an identical upgrade about a week earlier on its rival scrap melting firm Steel Dynamics Inc. (SDI), based in Fort Wayne, Indiana.

Goldman Sachs analyst Matthew Korn issued both upgrades, according to Barron’s. The financial media outlet cites as an advantage the “less capital-intensive” nature of melting scrap at EAF facilities versus the more costly sequence of processes needed to make steel via basic oxygen furnaces (BOFs).

Not all the news is good, according to both Goldman Sachs and Barron’s, with the write-up pointing to a recession likely to last through much of 2020 as looming. Korn writes that the stock price of “well capitalized steel companies that boast healthy balance sheet liquidity, lower levels of debt, and flexibility in terms of capital investment” are best poised to rebound as soon as 2021.

Korn places both Nucor and SDI in that EAF-related category. On the other hand, Korn’s price target in 2020 for Pittsburgh-based United States Steel Corp. (which makes most of its steel via the BOF method) has fallen from $9 per share down to $2.