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Producers are enjoying remarkable pricing power due to a supply shortfall that can't be easily met with imports.
Looking for a relatively safe bet in a volatile equities market? Some analysts think steel stocks might be worth a look.
Wall Street analysts are becoming more and more bullish on U.S. steel producers, either increasing their buy ratings or their earnings estimates with prices per ton climbing dramatically since October. The average price of one ton of steel jumped from $545 in December to $665 in February and is already being quoted as high as $800 for May orders.
Indeed, the Standard & Poor's Steel index was up nearly 4% year-to-date through mid-March, vs. a 12% decline in the S&P 500-stock index.
Some fund managers, too, are bulking up on more shares of companies such as U.S. Steel (X), Nucor (NUE), and Commercial Metals (CMC), whose gross margins are more than keeping pace with rising raw material costs due to price hikes.
That the industry is able to hike prices and boost its margins with the economy on the brink of recession seems counterintuitive, to say the least. What's wrong with this picture?
Nothing, say analysts. It's simply the law of supply and demand at work. The steel industry has structural capacity shortage in North America of about 30 million to 40 million tons a year. Imports from foreign steel producers are less likely to make up that shortfall, due to a weaker U.S. dollar and rising freight costs.
Inventories Aren't Climbing as Usual
Low-cost producers from Brazil, Russia, and India would typically be the most logical exporters, but there are multiple reasons why new capacity isn't being added there, from a scarcity of capital due to political risk in Brazil to government bureaucracy and local opposition in India.
Most steel imports are coming from China, which has excess production capacity, but those imports are down an estimated 50% in the past six months. Chinese producers, already burdened by freight costs that can reach more than $150 a ton, now have an added disincentive to export their steel
| Product Model | Inside Diameter | Outside Diameter | Thickness |
| CSEA020 bearing | 50.8 | 63.5 | 6.35 |
| CSCA020 bearing | 50.8 | 63.5 | 6.35 |