Bank of America Merrill Lynch is warning of a price-crushing steel glut so punishing that it warrants the end-of-days moniker "Steelmageddon."
The glut will sweep through the industry over the next few years as new project start-ups create an oversupply of steel commodities. The wave of new additions is expected to hit in 2022, with U.S. steel capacity growing by 20 percent, swamping the market and putting pressure on steelmakers' profit margins.
In the wake of Steelmaggedon, Merrill sees the U.S. industry emerging with a smaller footprint, as new electric arc furnaces replace older blast furnaces. The bank believes Nucor and Steel Dynamics could emerge with better market share and healthier profit margins, but warns that Steelmaggedon should deter most long-term investors from buying into the space.
"This purge of inefficient capacity can ultimately result in a leaner, more competitive, streamlined U.S. steel industry," Merrill Lynch analysts Timna Tanners and Wilfredo Ortiz wrote in a research note Thursday.
"After the dust clears from Steelmageddon™, an attractive steel industry could emerge. But we would warn investors the path for the next several years of upheaval can be treacherous."
(The investment bank is so confident the event will come to pass, it went ahead and trademarked the term "Steelmageddon.")