Tibis123

Commercial Metals Earnings and the Domestic Steel Market

Bellard,

First thing first, higher oil price is not necessarily a sign of strong economy. It could be a result of pure speculation as well. At this point, I am very bullish with the steel industry, as you are. Having said that though, I think the demand for steel will remain as strong as it is if and only if the global economy keeps growing. With oil price going up the way it is, no body knows for how long, one can reasonablly conclude it will slow down global growth. That is evident in the US economy right now where different sectors (Airlines, Transportation, etc) are greatly impacted by the price of oil. With slowing economy, the demand for Steel will be weak! You said If oil prices cause the global economy to fall, then oil will fall also... As far as I am concerned, the global economy is already slowing down (led by the US)... and the price of oil is still rising, with no sign of slowing down. I dont disregard the inevitability of demand destruction as the price of oil keeps increasing. But it is very likely that it will get to the point where it cripples the world economy before the demand for oil subsides and the price starts falling.. In short, Oil price rising results in significant global economic slow down (with out necessarily causing the price of oil to fall) and that will most likely translate in weak demand for construction (steel).

Commercial Metals Earnings and the Domestic Steel Market

I agree with the analysis that less steel import to the US will stregthens the local steel industry. What you never bother to mention, though, is the implied assumption that the US economy comes back to life sooner than later. With Oil prices likely to keep surging, it is very important to note that will stifile economic expansion and, therefore, eat away the demand for steel. With the economic back in track, there is a great future for the US steel industry.