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A combination of policy moves and a slowing economy have weakened the Brazilian real by 4.8% since the beginning of March, making it the worst performing currency tracked by Bloomberg. For exporters, this is a welcome change from the 8.7% appreciation in the first two months of the year, consequently making it the best-performing currency.
The boom-and-bust cycle in the shipping sector has far-reaching consequences. But even if the Chinese economy keeps pumping along, it may not entail bullish days ahead for steel stocks.
The biggest steel producer in the world is shutting down mills throughout Western Europe but the Russians are expanding to fill the gap.
ArcelorMittal is the world leader in steel, producing about 8% of all of the metal that finds its way into girders, cars and endless appliances. And its latest results are surprising the analysts.
A nice reversal today as the dollar gives back a little ground. There is an entire basket of oversold names here to choose from.
Even though Russia’s Severstal has grown to become the fourth-biggest player in the U.S. steel industry, the company now wants to trim its North American presence.
The problem is that while Severstal has found a possible buyer for three of its five U.S. mills, few Russian analysts expect the deal to close any time soon. And in the meantime, these operations have already failed to live up to their promise.
In 2007, when Severstal — which has no ADR, so you cannot trade it without a Russian brokerage account — was building out its U.S. footprint, the United States was producing roughly twice as much steel as it does today.
Unfortunately, with steel demand diving in the housing and auto busts, Severstal found itself having paid $2.2 billion for the three units currently on the block.
Today, they may fetch as little as a quarter of that price from private equity funds or foreign competitors.
Brazilian steel makers Gerdau (GGB, quote) and SID (quote) were reportedly approached, but have not exactly jumped at the chance.
There are some hard numbers in the backdrop of this story. U.S. mills only produced 58.2 million tons of steel last year, which was about 1/10 China’s total output of 567.8 million tons.
Although the United States remains one of the top five global centers of the steel industry, the mere fact that U.S. output has declined 40% since 2007 while China’s has edged up 16% speaks volumes.
While the numbers are bearish, news like this takes a little pressure off local names like U.S. Steel (X, quote), Nucor (NUE, quote) and AK Steel (AKS, quote).
Steel prices are strong. These companies should benefit from that, if management can react to the changing environment and scale down accordingly.
And in the meantime, the global players like PKX (quote), MT (quote) and MTL (quote) are still coping with their own problems and riding their own opportunities. This is definitely a sector to watch.
You have a nice trade today in the steel stocks despite some bearish rumbling about Chinese steel prices dropping. Right now, this is not so much about the fundamentals as the charts.
Steel makers are chasing each other lower to compete for business in China. Domestic prices there dropped another 5% last week and key products like hot rolled coil (HRC) steel are now down 30% a ton over there.
At this point, traders are finding it hard to care. These stocks have so much bad fundamental news priced in and are so technically oversold that the big names like ArcelorMittal (MT), U.S. Steel (X) and Nucor (NUE) are all due a bounce.
As to how low prices can go, the reality is that unless iron ore prices go lower, steel has a pretty high floor under it now.
And with analysts expect to see leading ore miners like Rio Tinto (RTP) and BHP Billiton (BHP) raise their iron prices by 23% over the next few months, that floor may not go away any time soon.
