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September 27, 2019

Ontario’s Stelco Slumps Amid Weak Steel Market & Scrapped Debt Offering

Disclaimer: The writer of this article may have positions in the securities mentioned in this article. The fact they hold positions in securities has had no impact on the production of this article

By Dylan Callaghan

September 27, 2019

Analysts are saying  it’s not the best time for steel right now as prices for the commodity are expected to continue to decline. Ontario based Stelco Holdings Ltd. (TSX:STLD) is in the fold of steel producers currently experiencing a lack of demand globally, causing this slump in steel prices.

To make matters worse for share price, the Canadian stock fell roughly 8% on Tuesday after it withdrew a $300 million USD debt offering. Stelco released last week that the company would offer senior secured notes due 2024 to fund capital expenditures and corporate needs, that could include acquisitions or other deals.

Stelco cited current bond market conditions is what pushed the company to its decision to withdraw the debt offering.

Should Stelco still want to raise funds, there are other potential options. Banks, or other direct lending avenues could be explored. No plans for other funding were released by the company, and in turn the market responded negatively to news of the debt offering being pulled.

Industry experts continue to predict low steel prices going forward. So Stelco is not alone.

Steel pains have been felt across the globe by the largest steel producing nations, China, EU, India, Japan, and the United States all licking their wounds in the steel market right now and healing is seemingly going to take some time.

Is Stelco a buy right now?

Roughly an 8% gain at closing today, is Stelco poised for a rebound? It may be possible with the significant drop seen since the withdrawal of the debt offering, but looking further, the future doesn’t appear to be very promising.

The company sits at a negative PEG of -0.43 that may suggest earnings will continue to shrink, with the company’s quarterly revenue growth shrinking at a pace of -39.40%.

Analysts also expect earnings to continue to fall by roughly 33% per year over the next half decade.

Taking this into account, one could draw the conclusion that now may not be the best point of entry for Stelco, and that waiting to see some more strength in the industry might be a better play. It’s always tough investing in cyclical sectors like steel, oil and even auto producers. The timing has to be right, and you need to know when to exit.

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Dylan Callaghan

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