Summary: Steel service centers, who buy 30% of the steel sold domestically, are reporting that their inventory has climbed to 15.9 million tons, the highest since January 2005. Adding to the supply, the U.S. is currently importing 40% more steel that it did last year. On the other side of the equation, the domestic auto industry has announced that it will be cutting back production. The result? UBS Research steel analyst Timna Tanners sees “At best, steel prices aren't going to be going up," with the worse scenario being steel prices dropping , as sellers unload inventory. UBS Research has issued downgraded on both U.S. Steel (X) and Nucor (NUE). While the price of hot-rolled-coil (used to make autos and appliances) has dropped by 3% in recent weeks, not all analysts are concerned: Some analysts believe steel prices will remain firm since manufacturers have already factored in the current supply (and anticipated demand) into their production levels.
Related links: Full WSJ article • A Commodity CEF That Lags Its Sector • What a U.S. Recession Would Mean for Sectors, Foreign Stocks • BusinessWeek: Steel Shares Slip on Softer Outlook • BusinessWeek: Analyst Note: Steel Sector
Potentially impacted stocks and ETFs: U.S. Steel (X), Nucor (NUE), AK Steel (AKS), Algoma (ALGOF) • US Auto Makers: GM (GM), Ford (F), DaimlerChrysler (DCX) • ETFs: iShares Dow Jones US Basic Materials (IYM), Vanguard Materials (VAW)
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