Please ensure Javascript is enabled for purposes of website accessibility

Why ArcelorMittal Stock Popped Today

By Rich Smith – Dec 15, 2020 at 1:57PM

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

Steel demand is booming, and a French bank offers Arcelor an upgrade.

What happened

Shares of ArcelorMittal (MT 1.87%) jumped Tuesday afternoon, and are currently up a whopping 9.9% as of 1:30 p.m.

There are two good reasons for this.

Hot rolled steel coil

This steel stock is red hot, says French bank. Image source: Getty Images.

So what

First and most obviously, there's the upgrade. This morning, French investment bank Societe General upgraded Arcelor shares to buy. Even more significant than the upgrade, though, is the price target Societe General attached to its upgrade: 32.50 euros ($39.53), or more than three times the bank's previous valuation of 10.30 euros.

SG cited "successful deleveraging and derisking" in the steel industry in general as the reason for its upgrade, according to Additionally, the analyst sees steel and iron prices soaring, and predicts this will boost profits at the steelmaker, which has reported six straight money-losing quarters so far, according to data from S&P Global Market Intelligence.

Now what

Nor is Societe General the only one to think this scenario likely. In fact, this morning's Wall Street Journal featured a sizable story explaining how "a long, pandemic-driven slump in steel demand" has given way to "resurgent orders" for steel. To meet the jump in demand, U.S. steelmakers have already brought back online most of the "one-third of domestic production" that were shut down earlier in the pandemic -- and there's still not enough capacity to meet demand.

Result: Steel production is surging, but so too are steel prices, and hot-rolled sheet steel at $900 a ton is now twice what it cost in early August.

This is good news for Arcelor, which makes the stuff. Whether it's good enough news to justify a stock price that has nearly tripled since the lows of this past March remains to be seen, and will depend on whether the company can successfully turn rising revenue into rising profits, and break a year-and-a-half track record of losing money.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

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