A lift moves a giant spool of finished steel.

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Steel prices have been on an epic tear, boosting stocks of companies that produce the metal. Wall Street, however, is starting to worry about falling prices. Stocks related to a commodity always have a tough time when prices for that product weaken.

Monday, Morgan Stanley analyst Carlos De Alba downgraded United States Steel (ticker: X) stock to the equivalent of Sell from Hold. He cut his target price by more than 50% to $17 a share from $35.

De Alba sees steel prices peaking this quarter. Tight supplies have sent the price for hot-rolled steel coil—a benchmark product—to roughly $1,900 a ton, up about 200% over the past 12 months. That compares with an average of about $600 a ton in prepandemic 2019, and about $1,950 in September. Current prices represent a tiny drop, but one that has analysts, and investors, worrying.

U.S. Steel stock, coming into Monday, was down about 5% over the past month. Shares are down about 28% from their August 52-week high of $30.57.

U.S. Steel shares were down another 3.3% in premarket trading. S&P 500 and Dow Jones Industrial Average futures were off 0.4% and 0.3%, respectively.

U.S. Steel stock, including the premarket drop, is still up roughly 30% year to date. The stock, however, is trading for about three times the per-share earnings expected for 2022 earnings. That is incredibly low, given that the S&P trades for about 20 times. The low valuation is a sign investors don’t expect this level of steel pricing, or profitability, to last into the future.

Other analysts seem to be coming to that conclusion too. Goldman Sachs analyst Emily Chieng downgraded U.S. Steel stock to Sell from Hold earlier in October. She cut her price target to $21 from $34 a share.

Today, about 31% of analysts covering U.S. Steel rate shares Buy and about 39% rate shares Sell. The average Buy ratio for stocks in the S&P 500 is about 55%. The average Sell-rating ratio is less than 10%.

The average analyst price target for U.S. Steel stock is still about $30 a share, but it has fallen from about $32 a share over the past three months.

Write to Al Root at allen.root@dowjones.com

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