[Ferro-Alloys.com] With 2019 nearing its end, it has been an underwhelming year for stocks in the steel space. In particular, U.S. steel stocks had been out of favor for most of this year. The American steel industry reeled under the effects of weaker steel prices, demand slowdown across major markets and damaging impacts of trade war.

The Trump administration’s imposition of 25% steel tariffs provided a shot in the arm to American steel makers last year and drove their earnings. However, after an initial tariff-induced rally, U.S. steel prices had been on a downswing and were down for much of this year. Lower prices have hurt the bottom lines of domestic steel companies through the first three quarters of 2019.

What Hurt Steel Stocks in 2019?

The slump in domestic steel prices has been the major headwind faced by U.S. steel makers in 2019.

Higher domestic supply resulting from a ramp up in production has contributed to the sharp decline in U.S. steel prices this year. Driven by the tariff impetus, U.S. steel mills rushed to bring back capacity and drive production las year, leading to oversupply in the market. The global economic downturn and waning steel demand are other key factors for the decline in prices.

American steel producers are contending with slowing steel demand, especially in automotive. A slowdown in global manufacturing activity, partly due to trade war, is hurting demand for steel. Softness across major end-use markets such as automotive, construction and energy has led to demand weakness. The steel tariffs have driven up manufacturing costs across these industries. The automotive industry, which consumes a big chunk of steel, is among the industries that has been hit the hardest.

Will 2020 be Any Better?

After a freefall, U.S. steel prices appear have bottomed out and are gaining some traction of late. Major U.S. steel mills have been raising prices over the past several weeks in a bid to reverse the downswing in domestic steel prices. Moreover, some of the U.S. steelmakers have recently taken steps to reduce excess capacity, partly through idling of plants, in the wake of falling prices. Capacity cuts have contributed to the recent decline in U.S. steel production.

Driven by the consecutive price hike actions by flat-rolled and plate mills and lower production, HRC prices turned upward in November from the three-year low level reached in October. Prices have also gained some upward momentum this month. Tighter domestic supply coupled with steel mills’ continued push for price hikes are expected to lend support to U.S. steel prices going into 2020.

The recent uptick in scrap prices, which had been down for much of this year, could also drive up domestic finished steel prices. Although a meaningful recovery is not expected to materialize over the near term, it is needless to say that higher prices would still provide a respite to domestic steel makers next year.

However, the demand side of the equation doesn’t look promising going into 2020. The World Steel Association (“WSA”) – the international trade body for the iron and steel industry – expects global steel demand growth to slow on a year over year basis in 2020.

The WSA envisions demand growth to decelerate to 1.7% in 2020 from a projected 3.9% rise this year. The projection takes into account an expected slowdown in demand in China amid a faltering domestic economy.

The WSA envisions U.S. steel demand growth to slow to 1% in 2019 from 2.1% last year and further decelerate to a paltry 0.4% growth in 2020. A weakening manufacturing sector is expected to limit demand growth.

Nevertheless, the de-escalation in U.S.-China trade tensions, at least for now, due to the announcement of the phase one trade deal would instil confidence in the reeling U.S. steel industry.

Although the demand environment is not expected to get better given the global slowdown, a recovery in steel prices and easing trade tensions would nevertheless bode well for American steel companies heading into the new year. (Zacks)