(By Balachander) CIBC World Markets Inc. upgraded the North American steel sector to "Market Weight" from "Underweight", saying steel prices appear to have bottomed.
The brokerage believes steel prices will remain uninspiring in the near-term due to excess capacity at NA steel producers. The U.S. is still operating at only 74.6 percent of capacity currently, which is generally not enough to generate material pricing power.
"While we have not altered our long-term outlook, we believe downside risk is limited due to the recent stabilization of steel prices (supported by the recent decline in import activity) and more reasonable steel-related equity valuations," CIBC wrote.
The brokerage also upgraded Nucor Corp. (NYSE:NUE) and Russel Metals Inc. (TSE:RUS) to "Sector Performer" from "Sector Underperformer", saying the shares are trading at more favourable levels based on higher consensus outlook.
Charlotte, North Carolina-based Nucor manufactures steel and steel products, including steel fasteners, metal building systems, direct reduced iron, brokers ferrous and nonferrous metals, among others.
Mississauga, Canada-based Russel Metals is engaged in the processing and distribution of metals consisting of energy tubular products, carbon steel, plate, beams, channel and flat rolled products.
NUE shares fell 1.05 percent on the NYSE, while RUS stock added 0.64 percent on the Toronto Stock Exchange in Friday trade.