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Strong Demand, Higher Prices to Aid Reliance Steel (RS)

Anindya Barman
Updated
Reliance Steel (RS) is poised to gain from favorable metal pricing environment and strong momentum across automotive and aerospace markets.

We issued an updated research report on metals service center company, Reliance Steel & Aluminum Co RS on Oct 16.

Reliance Steel is gaining from its broad and diversified product base, wide geographic footprint and continued demand strength across aerospace and automotive markets and synergies of acquisitions. The company continues with its aggressive acquisition strategy to tap growth opportunities.

The company, during its second-quarter call, said that it is optimistic about business conditions for the third quarter and sees continued improvement in the end markets in which it operates. The company expects demand to remain strong in the third quarter.

Demand in the aerospace market has been driven by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by increased use of aluminum in the industry.

Reliance Steel is also expected to continue to benefit from a favorable metal pricing environment. The company’s average selling price per ton sold rose 9.6% on a sequential comparison basis in the second quarter, exceeding its expectations of 5-8% increase. The metal pricing environment drove pricing levels in each month of the quarter, contributing to the company’s earnings. Strong demand coupled with Section 232 trade actions on imported steel led to higher pricing in the second quarter.

The Trump administration’s Section 232 actions have provided much-needed protection to the American steel producers including Nucor Corporation NUE, United States Steel Corporation X and AK Steel Holding Corporation AKS which had long struggled to cope with a tide of subsidized foreign imports. The tariffs are leading to lower imports into the United States and have provided a boost to U.S. steel prices.

Reliance Steel expects average selling price per ton to be up 1% to 3% in the third quarter from the second. This should support its margins in the third quarter.

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Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
 
Nucor Corporation (NUE) : Free Stock Analysis Report
 
AK Steel Holding Corporation (AKS) : Free Stock Analysis Report
 
United States Steel Corporation (X) : Free Stock Analysis Report
 
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