The importance of oil country tubular goods

While the Christmas season is still months away, steel companies have other reasons to celebrate. The steel sector has seen a lot of positive news over the past several months. The latest in the series has been the International Trade Commission (or ITC) ratifying the antidumping ruling by the U.S. Department of Commerce.

The importance of the ruling can be gauged from Credit Suisse doubling its price target for U.S. steel to $50. Please note that U.S. S teel  Corporation (X) is North America’s biggest producer for oil country tubular goods (or OCTG).

Positive news flow in steel industry

The recent ITC ruling has been like icing on the cake for steel companies. The industry has been buoyant, led by strong demand from the  construction and automobile industry. These two segments account for almost two-thirds of steel consumption in the U.S. The chart above shows the rebound in construction spending. As you can see, the sector has rebounded after hitting the bottom in the year 2011. The demand from the automotive segment also has been strong, with auto sales numbers reaching the pre-crisis levels.

These factors have made steel companies’ stocks do well on Wall Street. Most steel stocks, with the exception of ArcelorMittal (MT), have performed well. United States Steel C orporation  has led the way, with more than 100% return since last year. Steel Dynamics (STLD) has delivered returns in excess of 50%, while Nucor (NUE) investors earned around 20% returns in the past year. The strong performance of steel companies has also boosted returns from the SPDR S&P Metals and Mining ETF (XME).

The outlook for steel companies continues to be positive, with the demand in the U.S. expected to grow at around 5% this year, which is higher than the global average. With the strict stance from the government on the menace of steel imports, steel companies are expected to perform well.

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