Steel: The Top Is In Parts II, III

LONDON: The steel magnate Lakshmi Mittal joined the board of Goldman Sachs (GS) as an independent director, the company [Mittal Steel (MT)] announced Sunday, underlining the growing mutual dependence of the developing world and Wall Street's titans.

The very same Lakshmi Mittal who last week announced that, in so many words, steel prices have reached what looks like a permanently high plateau (© Irving Fisher Sep. 1929).

Sources:

Mittal joins Goldman Sachs board
by Julia Werdigier
International Herald Tribune Jun. 29 2008

Lakshmi N. Mittal to Join Goldman Sachs Board
Press release Jun. 29 2008

High prices curing high prices

NakedShorts usually takes his prognosticators with more salt than the Dead Sea, but when the guys who called the steel move pretty much all the way from the bottom issue a de facto sell on their biggest customers? It may pay to pay heed.

As a growing number of steel buyers and others forecast a leveling out in flat rolled steel prices during the coming months, two industry analysts gave a stronger message last week: Spot prices on sheet are poised to “plummet” in the second half of 2008.

Peter Marcus and Karlis Kirsis, managing partners in World Steel Dynamics [WSD], see the odds as essentially even that the export market price for hot rolled coil will fall to a range of $675-750 per tonne fob from about $1,100 per tonne currently...

...Marcus acknowledged that most of WSD’s own sources do not expect prices to decline as much as he and Kirsis anticipate. But...they gave a number of reasons for their outlook.

These include a sharp rise in global steel output as high prices have both encouraged mills to boost output and have coaxed more obsolete scrap out of the reservoir, resulting in a 12% rise in worldwide steel production this year to 1.5 billion tonnes. Moreover, an approximate doubling of steel product prices in several markets have helped to dampen demand in certain highly steel-intensive sectors...since their producers find it virtually impossible to pass along soaring costs to end-users. [Emphasis added].

Possibly early. But probably not wrong. And just as Australian iron ore producers whacked the Chinese with a near-doubling in iron ore prices.

WSD expects flat rolled coil price plunge
by Frank Haflich
Metal Bulletin Jun. 30 2008
(not directly linkable)

World Steel Dynamics

Earlier on NakedShorts:

Steel: The Top is In 
Jun. 29 2008

Comments

[fxtrader07]

There is a huge problem with the analysts' argument of a price slump due to cooling demand: many might not have a choice but to accept the higher steel prices and pass the costs on. It's similiar to the oil story and incidentally, very much connected to oil. the pipeline systems in many parts of the world are aged and need to be repülaced, the same is with oil rigs, oil plattforms, water pipelines, powerplants. railways etc. Wherever you look you need to replace or to upgrade and you can wait only so long before you have to do it no matter the price of steel. It's a price-spiral that is feeding upon itself - starting from oil/energy towards steel and metals

[DaveinHackensack]

It takes a while to make up for decades of underinvestment in supply. In 1995-2000 during tech boom, how many companies were investing billions of dollar to open new iron mines? Companies may be developing these resources with zeal now, but just as with oil and deep sea wells, it can take years to generate commercial levels of production from a new mine.

[Brahm]

With the steel industry having achieved significant "consolidation&qu... into larger entities in much of the free world, it is probably not realistic to expect massive price reductions when demand is peripherally down (.e.g 3-4%), especially when input costs (energy, iron ore) remain high. The reduced demand would most probably be countered by lowering production somewhat than by major price reductions. Chinese exports of steel are not a major concerrn when input costs are very high, since China imports appreciable levels of energy and iron-ore. The cost of inputs for many Chinese steel companies are generally higher than those for many global steel companies.

[jjc7477]

I am in the industry and attended the Steel Success Strategies symposium in New York where Marcus spoke. For those interested observers, Peter Marcus is viewed by virtually all in our industry as a nincompoop. He takes the "contrarian" position and then moves nine steps dead left. Personally, when he makes an announcement, I use that as an opportunity to bet against him----and usually win.

Currently, many factors are in place to support a strong steel market going forward: 1) Scrap is in short supply and availability is shrinking. 2) Domestic US mills are for the first time in over thirty years exporting material. 3) The US mills have shown great restraint when price begin to erode by removing capacity from the market. 4) The dollar is weak and will continue to be so as long as the US economy remains lethargic and Bernanke and the rest of the world are not in sync.

I could go on and on, but suffice it to say at the SSS gathering, Marcus and Karlis were outnumbered about seven hundred to one.

[steel magnet]

I copied the following statement from a seeking Alpha article by William Ellard "Peter Marcus of World Steel Dynamics believes that eventually steel makers will be unable to pass along raw material price increases, and that banks will begin refusing to finance inventories at these prices. Ironically, this may be a plus for U.S. steel makers since rising steel prices, and dollar issues, have made them more cost-effective while making foreign imports less attractive. This is good news for U.S. steel."
penalty tariffs recently cleared by the U.S Int'l Trade commission "for circular welded pipe" will also help domestic steel.
It is my opinion that the only thing holding back more drilling by U.S. oil drillers is a shortage of steel mills in the U.S. Its also my opinion that this is the price increase in TS "Tanaris".

[John L.]

Hey, looks like you forgot about all the "second Tier" cities that China is in the process of building right now. These are being built on a massive scale to shift population and production away from the large overpopulated cities.

As China found out recently, it takes steel rebars to make a building that can stand for more than a few years. I don't think they will cut corners on these new buildings and so we will see steel demand be extremely strong.

All this business about steel prices dropping because of increased production is a bunch of nonsense, don't believe it, and invest accordingly

[sandspider]

Let me see......the dollar improved by two cents this week against the euro, sooo at 1.56 vs 1.58 commodities are dead and the dollar is king?? There is indeed China and India, but remember that the Middle East is building new towns as well. UAE, Saudia, Jordon all my favorite jumping off points for my job in the "sandbox". Anyone else seeing it here?? Never seen so many construction cranes in my life. More steel is pouring into the Middle East as high rise buildings are going up faster then gopher holes in a field. Yeah go ahead short steel. Inflation is the curse of no control over spending and while America may be doing without their nice toys purchased on credit the Middle East and China and Brazil are spending cash. Enjoy, as I am hanging on to my steel stocks.

[sunrises]

Hello,

Agree. Steel is a demand play. It's a year around need in many industries. MT's valuation is very strong thus pullbacks are investor's entry point.

MT, X & RS excellent companies...