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Everything You Always Wanted To Know About Steel


We certainly have gotten a crash course on the global steel industry over the past few days.

I, on the other hand already knew the intricacies of this complex industry, as I was the Iron and Steel Correspondent for the Australian Financial Review
during the 1970s. I had to write an original news story about the topic every day for five years!

Suffice it to say that I know which end of a one inch steel I-beam to hold upwards.

So let me summarize for you the issue in a few short paragraphs. No research for me today! I can write this entirely out of my own head.

For a start, I saw all this coming someday, which is why I aggressively recommended a long position in US Steel (X) in August at $21. Yesterday, it traded at $48, up 128%, so well done to those who followed my advice!

If you own any other stocks, read on for the bad news.

The United States has not been cost competitive in steel production for 70 years. Since then, there has been a long succession of countries that could produce steel cheaper than we could, thanks to lower labor costs.

Germany and England were first, followed by Japan, South Korea, Canada, and more recently China, India, Russia, and Mexico.

Foreigners had another big advantage in that the US blew up almost the entire world’s steel production during WWII, except our own.

That meant the new competitors operated with brand new efficient steel mills, compared to our own ancient plants. Go to a US steel mill today and you are impressed with how antiquated everything is, employing processes that are over 100 years old.

A third factor is that the use of steel in all products has been on a secular long-term decline, as advancing

This article was written by

John Thomas is a 50-year veteran of the financial markets. He spent 10 years as a financial journalist, ten more years trading for a major investment bank, and another decade running the first dedicated international hedge funds. Seeing the incredible inefficiencies and severe mispricing offered by the popping of multiple bubbles during the Great Crash of 2008, and missing the adrenaline of the marketplace, he returned to active hedge fund management. With The Diary of a Mad Hedge Fund Trader, his goal is to broaden public understanding of the techniques and strategies employed by the most successful hedge funds so that they may more profitably manage their own money. He publishes a daily research newsletter, and offers one of the most successful trade mentoring services in the industry. He currently has followers in 134 countries. In his free time, John Thomas climbs mountains, does long distance backpacks, practices karate, performs aerobatics in antique aircraft, collects vintages wines, reads the Japanese classics, and engages in a wide variety of public service and philanthropic activities. His career has taken him up to 20,000 feet on Mount Everest, to the edge of space at 90,000 feet in the Cockpit of a MIG-25, and to the depths of a sunken Japanese fleet in the Truk Lagoon. Why they call him "Mad" he will never understand.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

j. hughes profile picture
The short term solution is a social security net; the longer term solution is education.
sleek profile picture
>> That erodes their ability to compete with imported cars made with cheaper foreign steel. <<

So the steel comes in that way instead, embedded in those imports.
Its more than just modernizing steel plants. The USA has spent a significant amount of money on EPA regulations that other countries (mainly China) didnt have to abide by. China is finally starting to clean up their act but still several areas that have smog so thick you cant see in front of you.
After wasting large amounts of national treasure to decimate the axis powers the u.s. not only put up the money and expertise to rebuild those economies and gave them unfettered access to our markets tariff free but we allowed them to tax our exports so their central gov's had funds.. as a young boy in the early 50's we filled up large boxes with food and clothing and posted it to europe..
those are now mature economies ( germany, japan and s. korea come to mind) and the bs has to stop.. it should have been stopped long ago but no balls in d.c.. we have gone from 11 aluminum smelters to 6 and only 1 that makes the high grade we need for defense projects.. china produces an excess 500mm tonnes of steel p/a and dumps it at whatever price they can get.. mex and canada will get carve outs..
we have been getting the smelly end of the stick for so long hardly anyone knows what the clean end looks like..
IDSA - best way to play steel. This microcap is starting to rip. $5 stock soon.
Wiekierc profile picture
"Go to a US steel mill today and you are impressed with how antiquated everything is, employing processes that are over 100 years old."


"It took ten man-hours to produce a ton of steel in 1980. Today, it is only two. That’s an 80% productivity increase. That's why US steel companies exist at all today."

So are they antiquated, or are they modernized and efficient?
Modernized and efficient. Billions have been spent in the USA over the last 40 years to transition from BOF to EAF melting technology and from ingot cast to the continuous casting process. The author admitted that the last time he wrote about steel was 40 years ago, and it shows!
Glad you are beating the drum.
"That means it is costing millions of dollars to create a single job in the steel industry."
Not only in company values, but also out of every American's pocket for everything we buy.
Azred profile picture
Steel, Aluminum, Copper. I thought the U.S. government had to use Copper on all its government installations, etc, I actually thought all power lines, Utility poles ran Copper but boy, oh boy, all those power lines we changed out at one particular Navel base and myself running back & forth from the recycle scrap yard with -back then- literally truck loads of the old copper lines from the poles we took out that had been there for just about forever, resulting in beat piles of cash during every run. Well, those were the days! Then I found out along the way that actually all those power lines out there? They take aluminum just as well. It’s just the government likes the Copper, I guess. And, aluminum is cheaper. We aren’t too far from retirement now. A year more. Maybe two, max. It feels good and to the degree of how so much has changed over the years it is feeling better by the minute. A lot of patience is required. I hope the young man taking over our business knows that by now. I think he does. Materials don’t come in from suppliers like they once did. Just preparing for a job is a royal pain. Talk about regs? Try being a contractor going for a simple 1 million dollar job. I don’t know how the bigger companies or bigger jobs to a company, does it. They have to have whole entire departments working on material job lists, code numbers, submittals. This last job we have and (finally) have been working on, took 3 months to get off the ground. Then you have suppliers today. Can’t get a couple pallets of materials to you for several weeks out. Sometimes, your given a date, but it’s a week or two weeks late. Back & forth to the phones. Another thing, By the rules. Uncle Sam says all materials used are U.S. made. Not entirely true. The clause and code numbers come into play with every little thing required to purchase for that job. It’s up to you to dig through the code numbers and find the one that lists the item as 55% made in U.S, the rest some other country. But as long as a portion of the piece you made was made here it will be approved then it may, or may not - fly. Finally, the submittals to make, to comb over every single item by line, can take weeks. Really, this stuff needs a whole program of its own + the Ppl who knows how to sort it all out. Doing it by human manually takes hours and hours a day 5-6 day’s a week until all prices and materials are broken down, laid out and sent in for “approval” No vendors in the U.S, sell materials solely made in the U.S. We’ve seen the best of it in Construction. Skilled workers are gone. Skilled Ppl in the office have shrunk. Materials are difficult to get in on time. And all these things count, too.
Industry question: what is the majority of US steel production comprised of (1) re-cycled scrap steel, (2) or new steel from iron ore. If the latter, where does the Iron Ore come from, domestically by trains or imports?

I ask for the knock on effect as opening up a new iron ore trade into the US should be quite beneficial to drybulk shipping markets
new iron mostly from northern great lakes area- US Steel in Georgia gets or did get raw iron from GA- the use of scrap would never keep up with demand - new iron must be processed thru blast furnace to separate iron from rock - we still ship scrap overseas depending on prices

US Steel makers beat to death by Unions - YES your wrap them up in Red White Blue steel workers destroyed thier own jobs as the UAW does today

US Steel makers did not improve US mills as they were selling steel to new mills overseas

the US will probably NEVER allow mills to shut down in USA for defense reasons
AKS is well run and cheap
I MISSED buying USS at $7
buddyrow4 profile picture
hello MHF
i cant help but feel some industries need to remain viable. some factories in america was a major factor in determining the out come of WW2.
some industries need to remain for national security reasons.
higher prices maybe what is needed to ensure some industries remain viable.
i very much enjoy your posts.....over look any spelling errors i think this is the my longest response to a poast
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