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Steeling for the Downturn

Tell us something we don't know.

Steel: The Top Is In Parts II, III

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.

Can Steel Stocks Continue to Climb?

I'm in the steel service sector of the industry and am also long NUE, PKX and SLX. I typically import about 20% of my annual volume but over the past year this has shriveled to nothing. Every company buying steel in the US or Mexico is part of a captive audience: no where to go for relief due to the dollar, the high cost of ocean freight and fierce demand in other market.

I began to go long in February and believe we are looking at a trend that should last into 2009. Yes, the mills are facing increased raw material costs, but witnessed by Nucor's and SDI's purchase of scrap companies and Nucor's new pig iron operation plans, they are spending their new found wealth prudently and ultimately, these costs will become somewhat contained.