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To: SOROS who wrote (8262)	3/12/2005 1:04:51 PM
From: Michael Young	Respond to of 37387

Steel analysis from Barrons: "Steel investors were shaken last week by a grim assessment of threats to the industry by John Surma, the CEO of U.S. Steel and president of the American Iron and Steel Institute. Speaking at an industry conference in Luxembourg, Surma asserted that the fundamental health of the U.S. steel sector faces new dangers in the form of rapidly rising steel production in China. Throughout 2004, the steel bulls pointed to the nearly insatiable Chinese demand for steel as a key reason for the industry's revival. But for the last four months, China has become a net exporter of steel. In his speech, Surma noted that China has doubled its steelmaking capacity since 2000 and now accounts for about 30% of the world's total. "If China does not rein in excess growth in their industry," Surma said, "if China becomes a substantial net exporter on a continuous basis -- rather than an importer -- their excess steel production could be poured into a market that is barely in balance during the strong end of the business cycle and oversupplied in the weak end." Surma notes that new export-oriented capacity is under construction, as well, in India and Brazil. Concludes Surma: "these developments carry the potential to tip the scale of supply and demand back to oversupply." James Poyner, an analyst with New York-based Palladian Research, noted in a recent commentary that steel companies are showing inventory increases "at a time when investors may still be under the impression that there are steel shortages on a widespread basis." The situation, he says, isn't sustainable. "The fact that market caps have continued to climb even as prices for rolled steel have started to drop in the past few months suggests a 'bubble' mentality among investors in this group in that stock action has divorced itself illogically from recent data."