What's the driven behind the recent hot steel stocks?
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What's the driven behind the recent hot steel stocks?
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2775 points
Oldman answered one year ago …
It takes a lot of coal (coke) and metallurgical coal to produce steel...never mind the amount of ore, and all these have transport costs...China and India both have large ore and coal deposits, but their current production of both is insufficient for their own building plans, and JoeStocks is correct, and the exporting countries, Canada, Brazil and recently, Australia, have gotten huge price increase on the shipments of coal, steel and iron ore to China and India. Meanwhile, in the U.S., specialty steel makers like NUCOR have been able to raise prices for finished products over the past two-three years, which they couldn't do previously due to the cheap imports from China. So, the pendulum of the balance of trade in steel production has swung with the IC of BRIC restricting exports and the BR of BRIC raising prices. Check out the rise of SLX ETF, and the increases in stock prices of CVRD, RIO, SID; BTU and KOL for comparison.
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904 points
jillybeansisme answered one year ago …
I suspect the growth in China and India.
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JoeStocks answered one year ago …
China and India, yes, but more specifically, China just started limiting the amount of steel its producers are allowed to export. The government cut steel export growth by 67% in 2007. And they're planning on doing it again this year. Although it could be even more, now that they have to rebuild from the massive earthquake last month.
On the plus side, the Chinese government just informed its steel producers that they were going to continue selling at the May 12 price for their product in the country, no matter how much demand went up. Gotta love a totalitarian regime.
411 points
jester112358 answered one year ago …
Most commodity industries like steel production, fertilizers, and mining have been undercapitialized with little new investment for years. With the increase in demand from expanding BRIC economies, steel producers have great pricing power and thus margins and earnings growth. That produces a demand from investors for their stocks which also exceed supply of these stocks So, the price goes up. I've been long MT, AKS and RIO for a couple of years with great results. The really large gains may be behind us, but there's still upside potential.
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