Gordon Johnson Sends Another Warning Shot On Steel Following MSCI Data
After the newest batch of MSCI data for the month of February, Axiom analyst Gordon Johnson is as bearish as ever on steel prices.
U.S. steel mill service centers recorded a 6.4 percent month-over-month decline in shipments and a 0.6 percent rise in inventories. Johnson notes that the historical average shipment decline is only 3.9 percent, while inventories have averaged a 0.2 percent decline as well.
“In short, as we have stated a number of times in the past, we believe inventory is being built in anticipation of a ‘Trump effect’ via imminent infrastructure spend and tax policy (which we do not see taking effect in 2017) against a backdrop of ‘tepid’ end-market demand,” Johnson explains.
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According to Johnson, a decline in U.S. auto demand coupled with weakness in China is more than enough headwind to push steel prices lower regardless of Trump’s policies.
After speaking with an industry insider, Axiom is convinced that unless real steel demand picks up by late April, prices will begin to fall.
“With the recent gains in stocks on optimism/hope, we continue to see the shot commodity trade as one of the best ways to create alpha in 2017,” Johnson concludes.
The firm has Sell ratings on the following U.S.-listed stocks:
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