For investors in steel stocks, some recent updates from U.S. Steel (NYSE:X) point toward a bright future. Throughout the year, commodity demand has kept steel prices elevated and the companies that dominate the industry have made it clear that they see ample reason for these trends to continue. These sustained price predictions have led industry leader U.S. Steel to announce an ambitious expansion.
What’s Happening With Steel Stocks?
The aforementioned project is the construction of a new steel mill, the actual building of which is slated to commence in 2022 with operational use beginning no later than 2024. According to the Wall Street Journal, this edition to the company’s Pittsburg, Pennsylvania facilities would increase production capability by 3 million tons of sheet steel on an annual basis and will cost the company roughly $3 billion to build.
Although the initial announcement seemed to help X stock rally, this trend did not prove sustainable. Since markets opened today, shares have declined steadily and considerably, closing down 8%. The past week has been fairly volatile, with the stock rising steadily on Sept. 15 and only declining slightly until today.
Things haven’t been much better for U.S. Steel’s competitors. Shares for ArcelorMittal (NYSE:MT) and Cleveland-Cliffs (NYSE:CLF) closed down 4.4% and 5.2%, respectively.
Why It Matters
Despite a day in the red for most major steel producers, the industry’s outlook should have investors feeling optimistic.
As the U.S. manufacturing sector has gradually rebounded from the effects of the Covid-19 pandemic, demand has risen. Prior to the pandemic, regulations that spawned from the U.S.-China trade war caused manufacturers to either reduce their workforce or shut down entirely. This certainly applied to the steel industry, but for the companies left standing, it has meant an increase in demand and less competition, naturally leading prices to rise.
This announcement from U.S. Steel should have investors feeling very confident, particularly those with X stock. It serves as an indicator not only that demand will stop prices from receding to pre-pandemic levels but that the company is confident that demand will still allow it to outpace competitors who may also explore expansion efforts.
What’s Next for Steel Stocks
It may take some time for steel stocks to retain momentum, but it is clear that both the demand and prices that they have enjoyed this year are here to stay. For a company to invest billions to expand facilities that will not be operational for almost two years signals that it is confident that it will come back in spades in both the short and long term.
If there were ever a time to bet big on steel stocks, this is it. The trade war may not have helped smaller companies, but it is definitely helping their larger competitors. This in turn will help shareholders as the infrastructure boom continues.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.