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Reliance Steel (RS) Poised on Acquisitions, Demand Strength

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On Oct 18, we issued an updated research report on Reliance Steel & Aluminum Co. (RS - Free Report) .

Reliance Steel is gaining from its broad and diversified product base, wide geographic footprint, continued demand strength across aerospace and automotive markets and synergies of acquisitions.

Reliance Steel continues with its aggressive acquisition strategy to incite growth. The addition of Metals USA to the company’s portfolio has complemented its existing customer base, product mix and geographic footprint.

The buyout of Tubular Steel also boosts the company’s long-term growth strategy and strength by expanding its product portfolio and end market diversification. Moreover, the acquisition of Best Manufacturing Inc. highly complements the company's existing service center network with its specialty high margin products, value-added processing capabilities and strong focus on customer service.

Reliance Steel also recently acquired all the common stock of Ferguson Perforating Company through its fully-owned subsidiary, Diamond Manufacturing Company. Ferguson’s high value-added processing capabilities align well with the company’s inorganic growth strategy and also extends its product portfolio.

Moreover, Reliance Steel is witnessing strong demand for its products across aerospace and automotive markets. Demand in the aerospace market has been supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company’s toll processing businesses in the U.S. and Mexico as well as increased use of aluminum in the industry. Reliance Steel expects sustained momentum across these markets in 2017.

Reliance Steel, in July, said that it remains carefully optimistic regarding activity levels of business in third-quarter 2017 due to normal seasonal patterns. The company anticipates demand to remain steady except for decline in shipping volume owing to customer vacation and shutdowns schedules in the third quarter.

As a result, the company expects tons sold will be down 3% to 5% in third-quarter 2017, compared with the previous quarter. Average selling price for the third quarter is expected to be flat to up 3% from the second quarter. The company benefited from higher metals pricing in the second quarter and expects positive momentum in pricing in the third quarter given increases in carbon steel pricing and potential for lower imports.

Reliance Steel also expects prices to increase further should the Section 232 investigation by the U.S. government leads to restriction on steel imports. The Section 232 probe is aimed at determining whether the imports pose a threat to national security and also gives the Trump administration the power to impose broad tariffs or quotas on imported steel. American steel makers including Nucor Corp. (NUE - Free Report) , United States Steel Corp. (X - Free Report) , AK Steel Holding Corp. (AKS - Free Report) , are pinning their hopes on President Trump enforcing new restrictions on imported steel.

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