- Steel stocks (NYSEARCA:SLX) in the U.S. and Europe are still not pricing in the impact of key structural changes in China's steel industry, which will reset global margins higher, Jefferies analysts say.
- The firm believes winter production cuts will weigh on iron ore and coal prices, which will affect steel, but steel margins should provide upside support driven by record utilization rates.
- Jefferies says the new fundamentals in the Chinese steel industry are underestimated, as more than 220M tons of capacity are shuttered and the national utilization rate has reached 82%, with the largest furnaces at 89%.
- Steel equities may come under pressure near-term, but Jefferies thinks this would provide a buying opportunity for top picks ArcelorMittal (NYSE:MT), U.S. Steel (NYSE:X), Nucor (NYSE:NUE), Steel Dynamics (NASDAQ:STLD) and Thyssenkrupp (OTCPK:TYEKF).
- Source: Bloomberg First Word
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