Please ensure Javascript is enabled for purposes of website accessibility

Why AK Steel Stock Jumped 10% Monday

By Rich Smith - Jun 3, 2019 at 4:47PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The steel market is pretty cool right now, but one supplier to the industry predicts it will heat up as the year progresses.

What happened

Shares of Ohio steelmaker AK Steel (AKS) were up 9.6% in the closing minutes of Monday trading, after falling all last week on worries of what the trade war might do to steel demand. And for that, you can probably thank Lourenco Goncalves, CEO of Cleveland-Cliffs (CLF -6.20%), an AK Steel supplier.

Molten steel pours at a foundry

Image source: Getty Images.

So what

In an interview today with S&P Global Platts, Goncalves explained that the U.S. economy is "fantastic," and because of this, the second half of 2019 will be similarly fantastic for steelmakers like AK.

Due to seasonal shifts in demand for steel, Goncalves says that "every year around June/July -- when people are on vacation and the automotive sector is changing over for the new-model vehicles," steel demand drops, steel service centers start to run on empty, and pent-up demand for new steel (from companies like AK) begins to build. The only difference this year, he said, is that "because of Trump and all this noise around trade," demand dried up a bit sooner than usual in 2019, precipitating the present panic over steel prices and steel demand.

Now what

This follows news reports that helped torpedo AK's share price last week, specifically, Barron's observation that buyers are buying less steel, and steelmakers are making less of it. The flip side of this dynamic, according to Goncalves, is that pretty soon the buyers will have to start buying again because "they have no inventory," even as the U.S. economy remains fantastic.

If and when he's proven right, and demand turns back up, so too should steel prices -- and AK Steel's stock price.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

AK Steel Holding Corporation Stock Quote
AK Steel Holding Corporation
Cliffs Natural Resources Inc. Stock Quote
Cliffs Natural Resources Inc.
$21.17 (-6.20%) $-1.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.