Investing.com - United States Steel rallied on Tuesday despite Goldman Sachs downgrading the company and warning that the backdrop for the steel industry is flimsy amid "materially" lower steel prices.
United States Steel (NYSE:X) was up 4.8%, shrugging off the downgrade amid a broader-based rally in markets as expectation for an interest-rate cut after Federal Reserve Chairman Powell said the central bank would "act as appropriate" to support the domestic economy.
Goldman Sachs downgraded U.S. Steel to sell from neutral. The investment house also cut its price target on the stock to $11 from $17, warning lower steel prices will lead to further earnings cuts and possibly hurt the company's bloated balance sheet. U.S. Steel hit a 52-week low of $11.67 on Friday. The Goldman downgrade is fairly aggressive. The consensus target of analysts polled by Investing.com is still $18.15.
The bank also cut its price targets on a slew of the other names in the sector including Steel Dynamics (NASDAQ:STLD), AK Steel (NYSE:AKS), Nucor (NYSE:NUE), Schnitzer Steel (NASDAQ:SCHN) and Reliance Steel & Aluminum (NYSE:RS).
"Weakening demand crossed with stubbornly high output from domestic mills has dragged steel sheet prices down to their lowest levels since 2016, and recent moves by the Trump Administration to weaken the Section 232 tariffs have contributed to expectations of ample available supply in the U.S. market," said Goldman Sachs analyst Matthew Korn.
President Donald Trump said last month the U.S. would lift steel and aluminium tariffs on Canada and Mexico. But also left the door open to reimpose the tariffs if the two nations failed to curb any surge of metals imports beyond historical levels.
As part of the U.S.-Mexico-Canada Agreement, the trio agreed to more closely monitor where the metals imported into North American originate from, with China accused of flooding the market with cheap metals.