1x2 prediction by Mightytips

The Strange Steel Sector

I’ve said it before… there’s something odd going on in global steel.

Headline news these days is all about slowing economic growth amongst big steel consumers. Yet prices seem to be holding up remarkably well.

Last week, India reported that Hot Rolled Coil prices in June held at 48,710 Rs./tonne. Down less than 1% from the three-year peak price of 49,050.

These resilient steel prices are especially perplexing given that input prices for steelmakers have been falling fast. Domestic Indian prices for coking coal are down 38% over the past year. Iron ore prices have fallen 13.5% in the same period.

That should equate to big savings and better margins. And yet India’s steel producers are actually seeing their bottom line go the other way. Major steelmakers Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) reported earnings last week. And both saw their profits shrink significantly.

SAIL’s after-tax profits fell 39%. RINL’s dropped an even-greater 53%.

The only logical explanation is that these companies are either seeing other input prices (aside from coal and iron) rise significantly–or they’re cutting back a lot of production.

Neither appears to be the case, however. And it’s not just India. Steel prices continue to hold at relatively high levels in other big producing nations like South Korea (where buyers should also be benefiting from lower coal and iron costs).

I’m not sure what it is. But something looks out of whack.

Here’s to ironing it out,

Dave Forest

[email protected]@piercepoints / Facebook

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