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US Steel: Waiting for the Bottom to Fall Out

US Steel: Waiting for the Bottom to Fall Out

Shares of US Steel have dropped 17% so far this year. That’s not as bad as AK Steel’s(AKS) 20% loss, but it easily tops the 12% decline in ArcelorMittal (MT), the 56.8% decline in Reliance Steel (RS) and the 8.7% fall in Steel Dynamics (STLD).

Still, Axiom Capital’s Gordon Johnsoncalls US Steel “among the best shorts in the market today.” He explains why:

Well, given the U.S. hot-rolled coil, or HRC, steel spot prices are sitting at an >$200/mt premium to Chinese HRC spot prices, and Chinese exports of steel are at multi year highs, we remind our readers that whenever the spread between U.S. HRC spot and Chinese HRC spot has opened up to the levels seen now, in a 2-to-3 month time frame, U.S. HRC spot prices have collapsed back down to the Chinese level, OR LOWER…

Further, given U.S. equity investors trade US Steel, in general, with the rate of increase/decrease in U.S. HRC spot prices, exacerbated by current Street ests. which call for sig. EPS upside in 2H14 for US Steel (which we believe will be disappointed in a sig. way), we think the time is “ripe” to be anteing up on the US Steel short position.

The market doesn’t seem to be arguing with that call today. Not only has US Steel dropped 2.3% to $24.51 at 11:03 a.m. today, but other steel stocks are getting hammered as well. AK Steel has fallen 1.2% to $6.54, while ArcelorMittal has declined 0.8% to $15.67, Reliance Steel has slid 1.4% to $71.34 and Steel Dynamics is off 1.5% at $17.85.

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