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Weekly On Materials

|Includes: Arch Coal Inc (ARCH), BHP, BTU, CLF, CNX, DWDP, DWDP, FCX, GG, GS, NTR, NUE, STLD, VALE, X

Materials Weekly


On Thursday, the World Steel Association, the steel industry's main body, has reduced its forecast for steel consumption growth this year to 2.1%, from a previous estimate of 3.6% made in April. As according to the association, the global steel demand will remain depressed till 2013 as a result of sluggish economic growth in China and the Euro crisis.

Meanwhile, China's largest listed steelmaker, Baoshan Iron and Steel, has announced that it will keep steel prices steady for the second consecutive month in November, despite a recent increase in spot prices.

We remain cautious about the steel industry in short-to-medium term. For long term investors, the upside is definitely there but the timing of its realization is uncertain. Nevertheless, we feel that Nucor (NYSE:NUE) is the safest player to bet for long term investors relative to other big names like U.S. Steel (NYSE:X) and AK Steel (NYSE:AKS).

Iron Ore

As according to Reuters, iron ore prices have increased by almost 13 percent between Monday and Wednesday "after the Chinese snapped up spot cargoes to boost run-down inventories following a week-long break." Consequently, the commodity is trading at an 11-week high level.

Recently, big iron ore giant VALE S.A. (NYSE:VALE) has also followed other iron ore mining giants in reducing output, amid depressed demand and supply glut. The world's largest producer of the steelmaking raw material has announced a reduction of 18% in its output of iron ore pellets. Previously, BHP Billiton Limited (NYSE:BHP) has delayed about $68 billion worth of projects in August, which included the expansion of an iron ore port.

Cliffs Natural Resources (NYSE:CLF) has exposure to both of the major steelmaking raw materials, iron ore and metallurgical coal. Therefore, it is the best player for those long-term investors, who want to target the turnaround in steel and, hence, iron ore and met coal industries once China's economy starts to gain pace. VALE is a pure play on iron ore and is among our top picks to play iron ore's rebound primarily due to its low cost production of the commodity.


In a recent client note, Goldman Sachs (NYSE:GS) downgraded Arch Coal Inc. (ACI) as it expects the coal company to reduce its metallurgical coal growth guidance. The banking giant is bullish on Peabody Energy (NYSE:BTU) and CONSOL Energy (NYSE:CNX) as it feels that both these coal miners are poised to benefit from a rebound in the spot coal prices, which are currently at "unsustainable levels."

Meanwhile, Dahlman Rose & Co. has predicted a rising demand for metallurgical coalfrom Chinese steel manufacturers which was bullish for met coal miner, Alpha Natural Resources (ANR).

However, we feel ANR and ACI are too volatile stocks for a risk-averse investor, despite their relatively high met coal exposure. CNX is a diversified player, considering its exposure to natural gas as well. Thermal coal players, like BTU, are relatively better options considering the recent rise in the prices of commodity's substitute, natural gas.

Upcoming Earnings Release(s) - Major Companies under our Coverage

Wednesday October 17

· Steel Dynamics (NASDAQ:STLD)

Thursday October 18

· Nucor

Monday October 22

· Freeport-McMoRan Copper and Gold (NYSE:FCX)

· Peabody Energy

Tuesday October 23

· AK Steel

· DuPont (DD)

Wednesday October 24

· Cliffs Natural Resources


Thursday October 25

· Dow Chemical (DOW)

· Goldcorp (NYSE:GG)

· Potash Corp (POT)

· CONSOL Energy

Friday October 26

· Arch Coal Inc.

Disclosure: I 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.