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Steel Price Tracker Summary - 29 November 2017

Core Content

This document provides a detailed analysis of the steel industry, focusing on price movements, company valuations, and key risks in the European and global markets. It includes data on hot-rolled coil (HRC), cold-reduced coil (CRC), hot-dipped galvanised coil (HDG), plate, rebar, iron ore, and coking coal prices, along with valuation metrics and company financials for ArcelorMittal and Voestalpine.

Key Price Movements

Hot Rolled Coil (HRC)

• Northern Europe: Prices dropped by E1 to E537 (up USD1 to USD633), down E10 in the past three months.
• Southern Europe: Prices dropped by E1 to E500 (stable in USD terms at USD590), down E10 in the past three months.
• United States: Prices increased by USD14 to USD689 (up USD40/t for several players), with a price gap of USD56/t with Europe and USD143/t with China.
• Chinese Exports: Prices were stable at USD546, down E5 in the past three months.

Cold Reduced Coil (CRC)

• Northern Europe: Prices dropped by E1 to E620, down E3 in the past month.
• Southern Europe: Prices dropped by E1 to E584, down E10 in the past three months.
• United States: Prices dropped by USD1 to USD867, with a significant USD20 drop in the past month.
• Chinese Exports: Prices were stable at USD590, down E1 in the past month.

Hot Dipped Galvanised Coil (HDG)

• Northern Europe: Prices dropped by E2 to E650, down E12 in the past three months.
• Southern Europe: Prices dropped by E1 to E608, down E12 in the past three months.
• United States: Prices dropped by USD5 to USD949, with a USD2 drop in the past month.

Plate

• Northern Europe: Prices increased by E3 to E575, down E15 in the past month.
• Southern Europe: Prices increased by E2 to E537, down E10 in the past three months.
• United States: Prices were stable at USD759 (stable in euro terms at E648).

Rebar

• Northern Europe: Prices increased by E11 to E656, up E4 in the past month.
• Southern Europe: Prices were stable at E542, down E1 in the past three months.
• United States: Prices were stable at USD617, down USD3 in the past month.

Iron Ore

• Fines 62% Fe: Prices increased by USD2/dmt to USD67/dmt, with a USD9 drop in the past three months.
• Fines 58% Fe: Prices dropped by USD1/dmt to USD47/dmt, with a USD20 drop in the past three months.

Coking Coal

• Premium Coking Coal (Australian Exports): Prices increased by USD5 to USD201, up E2 in euro terms to E168.
• China: Prices dropped by E5 in the past three months.

Scrap

• European Scrap: Prices were stable at USD290/t, with a USD24 expected QoQ decrease.
• Turkish Scrap: Prices increased by USD5 to USD315/t.

Key Company Valuation and Recommendations

ArcelorMittal (MT.AS)

• Current Price: EUR24.78
• Target Price: EUR33
• Valuation Method: A blend of forward EBITDA and DCF.
• Key Risks: Macroeconomic conditions, trade regulations, steel prices, raw material costs, project development, and FX rates.

Voestalpine (VOES.VI)

• Current Price: EUR47.78
• Target Price: EUR54
• Valuation Method: DCF-based.
• Key Risks: Lower steel prices/demand, higher raw material costs, and execution of growth projects.
• FCF Yield: 7-12% (strong cash flow)
• Underlying CF Yield: 9-10% (strong underlying cash flow)

Industry Valuation and Risks

• Valuation Approaches: DCF, normalised earnings, and SOTP.
• Key Risks:
  1. Global economic growth not meeting expectations.
  2. Lower-than-expected steel prices, which could erode earnings.
  3. Higher raw material and operating costs.
  4. Political influence in steel trade.
  5. Expansion projects not progressing as expected.
  6. M&A valuation and integration risks.

Recent Price Announcements

• SSAB Americas: Increased plate prices by $40/st.
• Nucor: Increased base prices on sheet steel orders by $30/st.
• ArcelorMittal USA: Increased base prices on sheet steel orders by $30/st.
• NLMK USA: Increased base prices on sheet steel orders by $30/st.
• Icdas (Turkey): Increased rebar prices by Lira 30 ($7.60)/mt.
• Kardemir (Turkey): Increased sales prices for round bar and rebar by Lira 130 ($33)/mt.
• Hesteel Group (China): Increased domestic rebar prices by Yuan 50/mt.
• Tokyo Steel Manufacturing (Japan): Increased long product prices by Yen 3,000/mt.

Financial Summary for Voestalpine

• DB EPS (EURm): 2.86 (2015), 2.80 (2016), 2.91 (2017), 4.16 (2018E), 4.66 (2019E), 5.25 (2020E)
• Reported EPS (EURm): 3.11 (2015), 3.34 (2016), 2.84 (2017), 4.16 (2018E), 4.66 (2019E), 5.25 (2020E)
• DPS (EUR): 1.00 (2015), 1.05 (2016), 1.10 (2017), 1.20 (2018E), 1.30 (2019E), 1.40 (2020E)
• BVPS (EUR): 26.0 (2015), 28.4 (2016), 30.8 (2017), 34.2 (2018E), 38.0 (2019E), 42.2 (2020E)
• Market Cap (EURm): 5,666 (2015), 5,731 (2016), 5,882 (2017), 8,360 (2018E), 8,360 (2019E), 8,360 (2020E)
• Enterprise Value (EURm): 9,694 (2015), 10,059 (2016), 10,335 (2017), 12,682 (2018E), 11,775 (2019E), 11,245 (2020E)

Valuation Metrics

• P/E (DB): 11.5 (2015), 11.7 (2016), 11.5 (2017), 11.5 (2018E), 10.2 (2019E), 9.1 (2020E)
• P/E (Reported): 10.6 (2015), 9.8 (2016), 11.8 (2017), 11.5 (2018E), 10.2 (2019E), 9.1 (2020E)
• P/BV: 1.31 (2015), 1.03 (2016), 1.20 (2017), 1.40 (2018E), 1.26 (2019E), 1.13 (2020E)
• FCF Yield (%): 1.6 (2015), 0.3 (2016), 1.7 (2017), 3.6 (2018E), 13.1 (2019E), 8.8 (2020E)
• Dividend Yield (%): 3.0 (2015), 3.2 (2016), 3.3 (2017), 2.5 (2018E), 2.7 (2019E), 2.9 (2020E)
• EV/Sales: 0.9 (2015), 0.9 (2016), 0.9 (2017), 1.0 (2018E), 0.9 (2019E), 0.8 (2020E)
• EV/EBITDA: 6.5 (2015), 6.7 (2016), 6.6 (2017), 6.6 (2018E), 5.8 (2019E), 5.2 (2020E)
• EV/EBIT: 11.5 (2015), 13.0 (2016), 12.6 (2017), 11.1 (2018E), 9.6 (2019E), 8.2 (2020E)

Key Financial Highlights

• Sales Revenue: EUR11,190 (2015), EUR11,069 (2016), EUR11,294 (2017), EUR12,507 (2018E), EUR12,760 (2019E), EUR13,251 (2020E)
• Gross Profit: EUR2,931 (2015), EUR3,210 (2016), EUR3,266 (2017), EUR3,514 (2018E), EUR3,639 (2019E), EUR3,837 (2020E)
• EBITDA: EUR1,485 (2015), EUR1,509 (2016), EUR1,557 (2017), EUR1,932 (2018E), EUR2,025 (2019E), EUR2,161 (2020E)
• Free Cash Flow: EUR92 (2015), EUR15 (2016), EUR98 (2017), EUR301 (2018E), EUR1,094 (2019E), EUR736 (2020E)
• Net Profit: EUR536 (2015), EUR585 (2016), EUR497 (2017), EUR728 (2018E), EUR816 (2019E), EUR918 (2020E)

Conclusion

The steel industry is marked by volatility, influenced by macroeconomic factors and commodity price movements. While current spot conditions remain strong, the analysis suggests that European steel prices are expected to fall due to fading cost support. ArcelorMittal and Voestalpine are highlighted as top picks due to their strong cash flow, valuation, and business model stability. The document provides a comprehensive view of price trends, valuation metrics, and risks, offering a detailed insight into the steel sector's performance and outlook.