What is the Deal with Steel?
The relentless decline in steel prices, 17 weeks by some peoples reckoning, has taken a toll on the publicly traded steelmakers. Lakshmi Mittal is now more famous for losing $30 billion in the shares of AreclorMittal (MT-NYSE) than building the world’s largest steel company, and the bears continue to press the bets against the sector, despite the horrific declines.
Goldman Sachs is out with a research note, and is finding glimmers of hope for battered bulls and differentiating between the various players. Of course you might want to take note that Lakshmi has recently joined Goldman’s Board of Directors:
Goldman Sachs analyst Sal Tharani said a stronger dollar, falling freight costs and low prices for coking coal and iron ore should boost steel imports over the next few months, forcing the price of steel “to hover close to industry’s cash cost.”
Tharani lowered his 2009 price forecast for hot rolled coil steel, a common industry metric, by 17 percent to $560 per ton.
Production cuts should ultimately bring supply in line with demand, and some easing in credit markets and inventory de-stocking would bring buyers back to the market, perhaps resulting in a first quarter 2009 bounce in steel prices, “which in our view would not last for long.”
Tharani said Steel Dynamics Inc. (STLD-NASDAQ) remains a “Conviction Buy.” For short-term investors he recommends buying shares of Nucor Corp. (NUE-NYSE) and simultaneously selling a call on shares of United States Steel Corp (X-NYSE). He also reiterated his “Buy” rating for Commercial Metals Co.
The analyst said he had a “Sell” rating on shares of Gibraltar Industries Inc. and Worthington Industries Inc. “due to their weak market exposure, deteriorating margins and expensive valuations.” AP
While sceptics continue to scoff at the various stimulus plans in the works, steel prices in some regions are beginning to catch a bid:
After continuous fall on week on week basis for last 17 weeks, the steel price movement this week has shown signs of revival as the billet prices at Black Sea witnessed a jump of USD 150 per tonne, no slide reported for other products and surge in scrap prices.
As per market reports following changes have taken place during the week
1. Scrap prices, which were reported to have reached bottom of USD 150 per tonne surged to about USD 300 per tonne on CFR basis at Turkey
2. Ukrainian and Russian billet majors increased their offers from USD 230 per tonne to USD 280 per tonne on FOB Black Sea basis in the previous week to USD 380 per tonne to USD 440 per tonne on FOB Black Sea basis
3. Prices of rebars of wire rods at Black Sea also showed mild improvement of about USD 30 per tonne
Some other encouraging news indicating stability and revival of steel prices are reported from EU for HRC. As per market reports, Russian sellers, who were offering HRC at EUR 350 per tonne on CIF basis in Southern Europe last week, without any reported transactions as buyers were looking at EUR 320 levels, have increased their offers to EUR 400 levels.
It appears that long products have bottomed out and are now in correction stage but the transactions in the coming weeks will give a clearer picture. Steel Prices
While it might be too early to get constructive on the stocks, they are attempting to hold recent lows. The hedge funds are, for the most case, out, but until reflation trade gets teeth the stocks are likely to back and fill. But with tons of capacity shuttered, and many mom and pop Chinese mills closed, we should soon find out if Lakshmi’s thesis has legs.
Too, his plans to vertically integrate have seemingly stalled out; if he wants to secure coking coal and iron ore supplies, he certainly has his chance.
If crisis creates opportunity we might soon find out if Aditya Mittal can live up to the hype, and position ArcelorMittal for the next up cycle.
Steel prices heading down
AP
First signs of steel market revival at Black Sea - 15 Nov, 2008
Steel Prices
June 29th
The heat is on - so Mr Steel just expands
Guardian UK
----------------------------------------------------------------------------------------------------------
The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. Long MT
Comments:
Next entry: Brazilian Trader Shoots First
Previous entry: SEC Nails Cuban in PIPE Deal
