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Thoughts on Recent Price Increases - Temporary Permanence

|Includes: AK Steel Holding Corp (AKS), MT, NUE, RS, STLD, WOR, X, ZEUS
The following is a summary of a report released to our paying subscribers last week.

Steel pricing globally and in the US is seeing unprecedented volatility – part of this is driven off of China where steel is such a key commodity it trades like oil in the rest of the world. But even in the US, we’ve now seen as much as a 20% increase in sheet prices in a single week – just a year ago we marveled over an identical price increase over an eight week period as “unprecedented”!

We believe these price increases make sense in the new normal. Any pricing trend in the steel industry has proven to be temporary the last 2 years, so the logic of the mills “making hay while the sun shines” is impeccable. 

Justifying these price increases as cost-driven in an environment of zero profits should not be a consideration – in our view – unless of course the concept of steel companies subsidizing steel consumers has become part of our brave new world. In our view raw material price volatility IS driving steel prices, but more from the perspective of steel consumers' behavior than anything else - with consumers buying steel when they see steelmaking raw materials costs rising, anticipating higher steel prices, and steel consumers living off of inventories when they see steelmaking costs dropping anticipating lower steel prices.

Ultimately it's the strength of the order book that is driving pricing.

Disclosure: I am long RS, CLF, NUE.