Key insights
- UBS upgraded four European steelmakers (Salzgitter, ArcelorMittal, voestalpine, and SSAB) to 'buy', citing new EU import quotas expected to tighten supply. Despite near-term cost pressures and
Investing.com -- UBS on Friday upgraded European steelmakers Salzgitter, ArcelorMittal and voestalpine to "buy" from "neutral" and kept its "buy" rating on SSAB, saying new EU import quotas that remove about 9 million tonnes of annual imports will tighten supply after a recent pullback in the shares.
The broker said the sell-off stemmed from near-term cost pressure and worries that rising interest rates will hurt demand, but it expects the supply loss to outweigh those concerns.
UBS set price targets of €71 for ArcelorMittal, €71 for Salzgitter, €64 for voestalpine and 120 Swedish crowns for SSAB. It showed upside of 31%, 61%, 51% and 21%, respectively. Salzgitter is the top pick because its earnings are about 2.5 to 3.5 times more sensitive to higher EU steel prices than those of the other three.
EU safeguard measures that took effect July 1 cap duty-free steel imports at 18.3 million tonnes a year, with a 50% tariff on anything above the quotas.
UBS said blast furnace restarts, mainly by ArcelorMittal, bring back about 7.6 million tonnes of announced capacity. Cuts at Taranto and at HKM, which Salzgitter owns, partly offset that. A court order requires Taranto to stop operations by Oct. 28, and the operator has appealed. If the appeal fails, about 2 million tonnes a year would leave the market.
UBS said it is "on a knife-edge" whether domestic producers can replace the lost imports. If forecasts from EUROFER, the main EU steel trade body, prove right, it estimates a shortfall of about 7 million tonnes by 2027.
UBS raised its EU hot-rolled coil price forecasts by 2%, 11% and 10% for 2026, 2027 and 2028. It now expects about €820 a tonne in 2027 and €805 in 2028, against a spot of about €745.
If the market needs imports that pay the tariff, import parity is above €900 a tonne, about 20% above spot, and UBS said it would not rule out €1,000 if demand improves.
UBS is sceptical that demand will grow in 2027 because of higher rates. It estimates demand would have to fall about 10% for the market not to need the restarted furnaces, which are only profitable at €700-€750 a tonne, and said it has not seen such a drop since COVID.
It said the shares trade at 4.5 to 5.5 times expected 2027 enterprise value to EBITDA, which it called cheap against history.
Third-quarter results, however, will not show the upturn, UBS said. It forecasts earnings below consensus for ArcelorMittal, voestalpine and SSAB, citing weak summer demand, the delayed effect of lower prices in May and June, and higher energy costs.
For ArcelorMittal, due to report Nov. 5, it forecasts EBITDA down 7% from the prior quarter to $1.92 billion, as higher European energy and CO2 costs of about $180 million outweigh modest price gains. SSAB reports Oct. 28 and voestalpine Nov. 11.
Salzgitter, reporting Nov. 12, is the exception. UBS forecasts EBITDA 9% above consensus, mainly on higher steel shipments.
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