Could the US Steel Industry Fall Further in 2016?

US steel industry in 2016

Last year was the most challenging year for the US steel industry since the global financial crisis of 2008–2009. Steel companies saw their market capitalizations dwindle to unprecedented levels in 2015. ArcelorMittal’s (MT) market capitalization fell to $7 billion in 2015. Compare that with the $33.1 billion that Mittal Steel paid to acquire Arcelor in 2006, and you’ll find that the combined entity today amounts to only about one-fifth of Arcelor’s 2006 price tag. With only about one-fifth of ArcelorMittal’s steel capacity, Nucor Corporation (NUE) commands a much higher market capitalization.

AK Steel Holding Corporation’s (AKS) market capitalization today is less than what it paid to acquire the plant in Dearborn, Michigan, from Severstal last year. United States Steel Corporation’s (X) market capitalization is slightly above the $1 billion mark. United States Steel Corporation was the first company ever to hit a market capitalization of $1 billion.

Key drivers

The big question now is whether steel stocks can finally recover from the slump. This year has started on a somber note, and most commodity (DBC) stocks fell steeply on the first trading day of the year as the Chinese manufacturing PMI (purchasing managers’ index) came in lower than expected. China’s manufacturing PMI has now been below the crucial 50 mark for ten consecutive months, as can be seen in the graph above.

Latest crash in the Chinese market

China’s lower-than-expected December manufacturing activity triggered a big sell-off in the Chinese equity markets, which had repercussions on other asset classes including commodities and global equities. China’s steady devaluation of its currency has not helped matters and has sent its equity markets as well as global stocks southward. Steel stocks have fallen in the current wave of the metal meltdown. However, the fall in steel stocks has not been as steep as the drop in copper and aluminum stocks.