US rebar, plate and HDG prices rise further as commodity strength lasts

28 February 2018SteelSteel Price TrackerSteelSteelPeriodicalEuropeFranceIndustrySteel Price TrackerDate28 February 2018Deutsche BankMarkets ResearchUS rebar, plate and HDG prices risefurther as commodity strength lastsStrong steel price momentum with scope for further margin expansionFigure 1: HRC prices2002503003504004505005506006507007508008509009501,0001,050Feb14May14Aug14Nov14Feb15May15Aug15Nov15Feb16May16Aug16Nov16Feb17May17Aug17Nov17Feb18Northern EuropeUSAChina exports to EuropeUSD/tSource: The Steel IndexEquities remain priced for a margin contraction (vs. spot). However, as discussedin our European Steel Outlook 2018, we see several reasons (high global pricelevels, protectionism, demand and consolidation) why margins may continueto stick or even expand further (which would imply further significant earningsupgrades across the space). Post the publication of the details on section 232(which would be positive for all US exposed assets/players) the key questions are1) How will the US Government decide (decision is due by 11th April) and 2) howmay other regimes react to respond to both the US and any possible redirectionof material trade-flow. Our top pick is ArcelorMittal, which looks attractive to usbased on strong cash flow (9-11% FCF yield), valuation and additional upsideoptionality.HRC: N. European prices up E3Last week, N. European prices were up by E3 to E571 (stable in USD terms atUSD704) and S. European prices were also up by E2 to E552 (down in USD termsby USD1 USD681). Prices have risen E49 in the past three months.US HRC prices up USD3; Chinese export prices up USD3Figure 2: Raw material prices15020025030035040045050055030507090110130150170190210Feb15May15Aug15Nov15Feb16May16Aug16Nov16Feb17May17Aug17Nov17Feb18Iron ore Fines 62% Fe, CFR Tianjin, ChinaShredded scrap, US (RHS)USD/tUSD/tSource: The Steel IndexUS HRC prices were up USD3 last week. The price differential with Chinaremained stable at USD240/t. Chinese HRC prices were up by USD3 to USD588.The spread between Chinese and S. European prices fell to USD93, above thetwo-year average spread of USD62, with Chinese prices up E14 (up USD41) inthe last three months.Plate: N. European prices up E2; US prices up USD27N. European prices were up E2 to E603 (down in USD terms by USD1 to USD743).Prices rose E4 in the past month. S. European prices were down E9 to E574 (downUSD14 to USD707). US prices were up by USD27 to USD942 (up E25 to E764)and several players have pushed for another USD50/t price hike.Iron ore: Fines 62% Fe prices up USD1; coking coal: prices up USD3We value MT using an equal blend offorward EBITDA (6.0x 2018E) and DCF(7.9% WACC, 2% Tg), and VOES using DCF(7.7% WACC, 1% Tg). Risks: weaker steelprices and demand divergence from oursteel sector scenario.The price of Fines 62% were up by USD1 WoW to USD80dmt. Chinese steeloutput decreased 1.3% WoW to 1.76mt/day in the last ten days of January. Pricesof premium coking coal (Australian exports) increased by USD3 to USD236 lastweek. They also increased by E3 to E191.Bastian SynagowitzResearch Analyst+41-44-227-3377Top picksArcelorMittal (MT.AS),EUR28.55BuySource: Deutsche BankDeutsche Bank AG/LondonDeutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should beaware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should considerthis report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONSARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.Distributed on: 28/02/2018 02:03:08 GMT7T2se3r0Ot6kwoPa 28 February 2018SteelSteel Price TrackerScrap: European prices down USD3European prices were down by USD3 to USD340/t, while Turkish prices were upUSD6 to USD358/t last week. If current prices were to remain stable until end-Q1, the QoQ price increase for European scrap in Q1 would be USD32.Page 2Deutsche Bank AG/London 28 February 2018SteelSteel Price TrackerDeutsche Bank Steel &Mining teamDeutsche Bank AG/LondonPage 3 28 February 2018SteelSteel Price TrackerSteel price summaryFigure 3: Steel price summaryPrices for the week Feb 12 - Feb 19BloombergPrice per tonneAbsolute change (USD)% change (USD)Absolute change (EUR)% change (EUR)IndexTickerUSDEUR1w 1m 3mytdy/y1w 1m 3mytdy/y1w 1m 3mytdy/y1w 1m 3mytdy/yHot Rolled Coil (HRC)N. EuropeTSIPNEHR7045710257059 10904119183213736804771S. EuropeTSIPSEHR681552-1148355 1200214921212493321021064TurkeyTSIPTKHR6455234149435 1211217623511591727121335USATSIPUSHR828672361143 107 142082115215509573231817124Chinese exportsTSIPCXHR58847531341168112731628140702302Cold Reduced Coil (CRC)N. EuropeTSIPNECR7936441155746800286113122424-320244-5S. EuropeTSIPSECR793644-3179868 118021491811559425021071TurkeyTSIPTKCR73759713177739 112221261813144219622831USATSIPUSCR97479093198556213116710255327-721374-8Chinese exportsTSIPCXCR620503042752801415243-7-57011-1-10Hot