Credit Suisse downgrades U.S. steel sector citing oversupply

A Nucor Corporation steel production facility is pictured in Convent, Louisiana, U.S., June 11, 2018. REUTERS/Jonathan Bachman

(Reuters) - Credit Suisse on Monday downgraded the U.S. steel sector as it expects prices to fall due to oversupply, stemming from the Trump administration’s move to slap tariffs on Chinese imports.

U.S. steel prices and production have hit multi-year highs due to the tariffs as well as strong demand from an expanding economy.

The brokerage cut its rating on the sector to “market weight” from “overweight”, saying capital spending by firms has “disappointed” investors. Credit Suisse also downgraded Nucor Corp, Steel Dynamics and Cleveland Cliffs to “neutral”.

The Trump administration’s ongoing talks with Canada on tariffs related to steel and aluminum could also add to the oversupply of the commodity, the brokerage said.

A near-term deal with Canada remains unlikely, but odds are in favor of a deal being sorted out by early 2019, Credit Suisse said.

“We believe it’s likely that Canada and the U.S. will come to some agreement on quotas and tariffs will go away,” Credit Suisse analysts wrote in a note on Monday.

Last week, Canada said it would impose new quotas and tariffs on imports of seven categories of steel to head off a potential rise in imports as overseas steelmakers shut out of the United States seek new customers.

Reporting by John Benny in Bengaluru; Editing by Saumyadeb Chakrabarty