3 Steel Stocks Sinking On China

Steel Dynamics, Inc. (STLD), Nucor Corporation (NUE), and United States Steel Corporation (X) are slumping following lackluster trade data from China

Kirra Fedyszyn
May 9, 2016 at 3:37 PM
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Steel stocks are slumping today, following lackluster trade data out of China. Plus, while China's big steel mills swung to a profit in March, the China Iron and Steel Association (CISA) said "the trends facing the sector remained difficult." Pouring salt on the proverbial wound, the European Union (EU) ambassador to China said "Overcapacity ... is one of the issues which needs to be dealt with very urgently." Against this backdrop, domestic steel stocks are feeling the pressure today, including Steel Dynamics, Inc. (NASDAQ:STLD), Nucor Corporation (NYSE:NUE), and United States Steel Corporation (NYSE:X).

STLD is down 5.4% at $23.59 -- but still holds a year-to-date lead of 32% -- on track to close below its 30-day moving average for the first time since late February. Analysts as a whole are highly optimistic, with 11 out of 12 rating the equity a "buy" or better, and not a single "sell" on the books. In fact, over the weekend, KeyBanc boosted its price target for STLD to $28 from $25. Elsewhere, though, short interest has been on the rise, climbing more than 27% during the two most recent reporting periods. And in the options pits, traders have been buying to open puts over calls at a faster-than-usual clip. Specifically, Steel Dynamics, Inc.'s 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 6.91 sits higher than 91% of all readings in the past year.

NUE is off 4.6% today at $46.61, and is on pace to notch its first settlement south of its 40-day moving average since late January. Nevertheless, the shares are still up 16% in 2016, but analysts are equally split. Specifically, six maintain a "strong buy" rating, while six call the stock a "hold" or worse. Options traders haven't been hopeful lately, either. At the ISE, CBOE, and PHLX, the equity's 10-day put/call volume ratio of 1.35 ranks in the 82nd percentile of its annual range. This preference for bearish bets over bullish is also a change of pace for the stock, as long calls had outpaced puts in Nucor Corporation's options pits for nearly four months before the tide changed late last week.

X is taking the biggest hit, plummeting 13.7% to $16.28 -- paring its year-to-date gains to a still-impressive 104%. The shares are also attempting to maintain a foothold atop their 50-day moving average. This trendline has supported the stock since mid-February after ushering X lower through the latter half 2015 and into early 2016. Analysts are pessimistic despite X's more recent outperformance, with 12 out of 14 calling the stock a "hold" or worse. Plus,short interest is elevated, representing over 27% of the security's available float. Likewise, options traders have been initiating puts at a near-bearish extreme. At the ISE, CBOE, and PHLX, X's 10-day put/call volume ratio of 3.92 is higher than 94% of the past year's readings. Even more compelling, United States Steel Corporation's Schaeffer's put/call open interest ratio (SOIR) of 3.27 shows puts more than triple calls among options expiring in three months or less -- and is perched at a 12-month peak.

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