U.S. Steel Corp. (X) closed just above 26 in Friday’s session after a UBS analyst upgraded shares from ‘Sell’ to ‘Hold’ and doubled the firm’s price target to $30. Weekly options expiration and a month long test at major resistance may have dampened short-term buying interest but the stock is on track to reach the target in the next few weeks. If so, that will mark the highest high since October 2018.

Surging Steel Prices

The stock has risen more than 50% so far in 2021 and more than 150% in the last year, underpinned by steel prices that have risen by an even greater pace. The booming U.S. economy has triggered a surge in demand, allowing the company and its worldwide competitors to aggressively raise prices. However, many industry experts believe that steel prices will ease soon, triggering a reversal in shares that could relinquish a large percentage of yearly gains.

UBS analyst Andreas Bokkenhauser sees things differently and is looking for this commodity cycle to persist longer than many folks expect. He lists supply constraints as the primary price mover and points out that China may impose an export tax that drives down local prices while pushing foreign steel prices higher. However, nothing is certain at this point, which is why the analyst chose a modest upgrade rather than an enthusiastic ‘Buy’ rating.

Wall Street and Technical Outlook

Wall Street consensus has lifted substantially in the last year and stands at a ‘Hold’ rating based upon 3 ‘Buy’, 7 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of just $14 to a Street-high $35 while the stock closed Friday’s session nearly $4 below the median $30 target. A quick ramp into that level is possible but further gains may be tough, with post-pandemic supply constraints slowly working out of the system.

U.S. Steel hit an all-time high in 2008 and turned sharply lower, posting lower highs in 2010 and 2018. The decline may have ended at an all-time low in March 2020, ahead of a recovery wave that stalled in May 2021 after crossing the midpoint of the 2018 into 2020 selling wave.  This level also marks 200-month moving average resistance, highlighting a substantial barrier that could end the short-term uptrend. Meanwhile, the secular downtrend will remain fully intact until the stock completes a 100% retracement into the 2018 peak at 47.64.

Story continues

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Disclosure: the author held no positions in aforementioned securities at the time of publication. 

This article was originally posted on FX Empire


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