Wall Street Wary of Steel

Wall Street traders, reportedly worried about a potential slowdown in the Chinese construction boom and its accompanying steel demand, have begun selling off stocks in steelmaking companies in mid-October.

According to CBS MarketWatch, a range of U.S.-based steelmakers saw their share values slide down on Weds., Oct. 13, with the trend continuing into Thursday morning.

On Wednesday, steel stocks began dropping rapidly after Bradford Research, New York, downgraded Nucor Inc., Charlotte, N.C., and Steel Dynamics Inc., Fort Wayne, Ind. The accompanying report predicted weaker prices and softer orders for the steel industry.

Nucor shares lost $4.49, or nearly 5 percent of their value, on Wednesday, while shares in Steel Dynamics fell nearly $3.00 in value, losing 7.5 percent of their worth in one day.

Analyst Charles Bradford told CBS Marketwatch that high ferrous scrap prices would also affect the profitability of the two companies. “We are reducing our rating on Nucor shares due to increased spot steel price weakness and a sharp rebound in the price of steel scrap, the company’s largest [single] cost,” he remarked.

The analyst added that Nucor and Steel Dynamics were still competitive companies overall, but that weaker orders would affect their profitability in the near-term. The changed circumstances included high scrap prices coupled with lower prices for finished steel coils eating at margins from both ends.

Bradford noted that that pressure from both ends will not be sustainable, as either scrap prices will begin to lower or steel prices will rise again.

A Goldman Sachs analyst quoted by CBS Marketwatch expressed caution regarding whether the Wednesday share price drops were warranted, since steel pricing and demand was still strong in many parts of the world.