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Shares of Canadian steelmaker Stelco Holdings Inc. (STLC-T) are surging amid the rising price of its main commodity, supply shortages and the so-called “recovery trade” as investors start focusing on life after the pandemic.

The Hamilton-based company’s shares are up 13 per cent in the past five days and have risen by about 120 per cent in the past three months. The stock traded as high as $20.52 in early trading on Friday, its highest point in about two years. Its all-time low since going public at $17 in Nov. 2017 was $3.24, reached in March amid the pandemic-induced market meltdown.

Stelco produces and sells steel products including hot-rolled coil (HRC) and cold-rolled coil (CRC) to customers in the steel service center, appliance, automotive, energy, construction, pipe and tube industries in North America.

The price of HRC, the company’s main commodity, has doubled since August to about US$900 a ton, which is helping to drive the stock higher, says Maxim Sytchev, an analyst and managing director of industrial products at National Bank Financial.

Mr. Sytchev says the HRC price increase is driven by supply curtailments and a shortage of scrap metal during the pandemic “as it impacts the input pricing for electric arc furnace players.”

He says the consensus is that HRC pricing isn’t sustainable at the current level, with average prices for 2021 forecast at about US$700 per ton.

Mr. Sytchev has a “sector perform” (similar to hold) on the stock and a target price of $16, which he increased from $12 in mid-November “to account for better commodity pricing.”

David Ocampo, an analyst with Cormark Securities, increased his target price on Stelco stock to $33 from $24 this week, after hosting the company’s executives for a day of marketing.

“While there were no material updates during our day with management, we did come away with more confidence that Stelco is realizing the cost benefits and increased capacity from its recent blast furnace upgrade,” Mr. Ocampo said in a Dec. 11 note. He has a “buy” rating on the stock.

Since emerging from bankruptcy protection in 2017, he said Stelco has “evolved from a producer bogged down by legacy costs to the lowest-cost integrated producer in the industry. With long-term contracts in place for many of its inputs, Stelco has a fairly sticky cost base relative to its competitors. In turn, this allows Stelco to generate superior returns at peak steel prices while still producing income at the bottom of the cycle.”

Jennifer Radman, head of investments and senior portfolio manager at Caldwell Investment Management Ltd. says her firm bought Stelco shares in its Caldwell Canadian Value Momentum Fund in October, as part of a strategy “to run a concentrated portfolio of stocks we believe have strong catalysts to drive share prices higher.”

Ms. Radman says steel prices are strong and keep moving higher, “but we also see company-specific catalysts with the recent completion of the blast furnace project which is expected to drive margin and volume upside, and allow Stelco to fully capitalize on the strength in steel prices.”

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