oh yes, BS , LTV and WS and a few others look like they have gotten into the way of an oversized steam-roller. assuming this doesn't mean they're going out of bidness altogether (never seems to happen btw., even though some have a habit of entering ch.11 from time to time), those are the most contrarian bet around probably. i know that scrap steel prices have been falling sharply during the summer, haven't looked lately though. lowers input costs, but product prices tend to follow suit with little lag time.
perversely, what happens is that steel producers are in such a competitive market, that lower input costs tend to be passed on to buyers almost right away, so that falling input costs = immediate price war is the equation that is at work. what then often happens, is that the price war accelerates faster than the drop in input prices, so you end up with margins squeezed. everybody assumes right away that low scrap prices indicate falling demand for steel and feels compelled to undercut the competition asap. now there's also the energy price shock pressuring margins...
one thing's for sure, in terms of an industry group being out of favor this is probably on a par with the early 40's low in the utilities.
big question is of course which are and which are not in danger of becoming redundant overcapacity...
re: Yen, that's not the main currency criterion imo. the Yen is the ONLY major currency that shows some relative strength vs. the frizzlebun aside from the pegged ones (which are anyway not major).
all of South East Asia is back in free-fall currency wise, and so is LatAm & Europe. Argentine's crisis is rooted in its currency peg, as next door Brazil devalues at warp speed.
so the US based steel makers have a tough time competing. anti-dumping allegations are also more difficult to sustain when currency differentials are at fresh extremes. what they really need is a general dollar dive...of course a sharply rising Yen would be nice per se too.
on long term charts the Yen actually looks constructive, but some economists argue that Japan will be forced to devalue to help with the reflation of its economy. problem is only, if they do that, the rest of Asia will just keep on devaluing in lockstep, possibly even faster. no can do...not when you're already running a huge trade surplus to boot. |
